<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
                                   -----------

                     ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                       For the year ended January 31, 2002

                        Commission File Number 001-14503

                           DECTRON INTERNATIONALE INC.
                           ---------------------------
             (Exact name of registrant as specified in its charter)

         Quebec, Canada                                   N/A
         --------------                                   ---
(State of Incorporation or other           (I.R.S. Employer Identification No.)
 Jurisdiction of Incorporation or
 Organization)

4300 Poirier Blvd., Montreal, Quebec, Canada                         H4R 2C5
--------------------------------------------                        ---------
(Address of principal executive offices)                            (Zip Code)

                                 (514) 334-9609
                                 --------------
              (Registrant's telephone number, including area code)

             Securities registered pursuant to Section 12(g) of the
                                 Exchange Act:

                           Common Stock, No Par Value
                    Redeemable Common Stock Purchase Warrants
                    -----------------------------------------


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X | No | |

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Yes  X       No
    ---          ---

      The issuer's revenues for the most recent fiscal year were $33,285,958

      The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price on April 26, 2002 of $5.90 was
approximately $5,610,351.

      As of April 26, 2002, there were 2,795,000 shares of Common Stock, no par
value per share, outstanding.

      Documents incorporated by reference: None.



<PAGE>

                           DECTRON INTERNATIONALE INC.
                        2001 ANNUAL REPORT ON FORM 10-KSB

                                TABLE OF CONTENTS


<TABLE>
<S>               <C>                                                                                            <C>
                                                       PART I

Item 1.           Business........................................................................................4
Item 2.           Properties......................................................................................9
Item 3.           Legal Proceedings...............................................................................9
Item 4.           Submission of Matters to Vote of Security Holders..............................................10

                                                       PART II

Item 5.           Market for Registrant's Common Equity and Related Stockholder Matter ..........................11
Item 6.           Management's Discussion and Analysis of Financial Condition and Results of
                   Operations....................................................................................12
Item 7.           Financial Statements...........................................................................16
Item 8.           Changes in and Disagreements with Accountants on Accounting and Financial
                   Disclosures...................................................................................16

                                                       PART III

Item 9.           Directors and Executive Officers of the Registrant.............................................17
Item 10.          Executive Compensation.........................................................................20
Item 11.          Security Ownership of Certain Beneficial Owners and Management.................................24
Item 12.          Certain Relationships and Related Transactions.................................................25
Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K................................27

Signatures.......................................................................................................28

</TABLE>





                                       2
<PAGE>



                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 "Business." 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.

                               EXCHANGE RATE DATA


         Dectron maintains its books of account in Canadian dollars, but has
provided the financial data in this Form 10-KSB in United States dollars and on
the basis of generally accepted accounting principles as applied in the United
States, and Dectron's audit has been conducted in accordance with generally
accepted auditing standards in the United States. All references to dollar
amounts in this Form 10-KSB, unless otherwise indicated, are to United States
dollars.

         The following table sets forth, for the periods indicated, certain
exchange rates based on the noon buying rate in New York City for cable
transfers in Canadian dollars. Such rates are the number of United States
dollars per one Canadian dollar and are the inverse of rates quoted by the
Federal Reserve Bank of New York for Canadian dollars per US$1.00. The average
exchange rate is based on the average of the exchange rates on the last day of
each month during such periods. On April 26, 2002, the exchange rate was Cdn$
0.6397 per US$ 1.00.




<TABLE>
<CAPTION>
Year Ended December 31,                    1997        1998        1999        2000        2001
-----------------------                    ----        ----        ----        ----        ----


<S>                                      <C>         <C>         <C>         <C>          <C>
Rate at end of period                    $0.6991     $0.6532     $0.6929     $0.6669      $0.6267

Average rate during period                0.7223      0.6745      0.6730      0.6733       0.6444

High                                      0.7467      0.7061      0.6929      0.6984       0.6697

Low                                       0.6945      0.6376      0.6582      0.6410       0.6241
</TABLE>



                                       3
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         Unless otherwise indicated, all reference to "Dectron," "us," "our" and
"we" refer to Dectron Internationale Inc. and its wholly-owned subsidiaries:
Dectron Inc. ("Dectron Inc."), Dectron USA, Inc. ("Dectron USA"), Refplus Inc.
("Refplus"), Thermoplus Air Inc. ("Thermoplus"), Klaasco ("Klaasco"),
Circul-aire ("Circul-aire"), IPAC 2000, Inc., ("IPAC") and Groupe Prodapec 2000
Inc.

Overview

         Dectron is located primarily in and around Montreal, Quebec, Canada.
Through our operating subsidiaries, Dectron Inc., Refplus, Thermoplus, Klaasco,
Circul-aire and IPAC, we manufacture and supply an array of products for the
dehumidification, refrigeration, air conditioning and indoor air quality ("IAQ")
markets. The products manufactured and supplied include mechanical dehumidifiers
and energy recovery systems through Dectron Inc., and refrigeration and air
conditioning systems through Refplus and Thermoplus. Thermoplus also has a line
of air filtration products. Circul-aire specializes in air, gas, dust and fume
filtration, IAQ and heat recovery. IPAC specializes in precision cooling
products, air conditioning products and compressed air products. Klaasco is
responsible for producing the bulk of our special steel enclosures, electrical
control panels, and other steel products. However, each of our manufacturing
subsidiaries has the capability of doing their own sheet metal work.

         We believe that we have structured Dectron in such a way that, other
than with respect to the raw materials required to make the components for our
products and certain specialty products, we are not dependent on outside
suppliers for fabricated parts for our products. We have invested significant
resources in our manufacturing equipment and as a result we can manufacture the
most important components for any of our fabricated products, regardless of
whether the product is standard or a custom design.

 Dectron Inc.

         Dectron Inc., the largest of the subsidiaries, was incorporated in 1977
to develop, manufacture and market standard and custom design dehumidification
equipment. After extensive research and development, Dectron Inc. introduced a
line of indoor pool and commercial dehumidifiers under its DRY-O-TRON TM
trademark. This product line has experienced tremendous success in North America
and as a result has allowed us to become, in our opinion, the leader in North
America's indoor pool dehumidification business. We believe that Dectron is now
one of North America's leading manufacturers of dehumidification and closed
looped energy recyclers.

         Dectron Inc.'s standard products are now primarily manufactured by
Thermoplus. As a result, Dectron Inc. focuses its own manufacturing operations
on the manufacture of its customized dehumidification systems. We believe that
the customized product market is where our competitive advantage is most
evident. Ordinarily, with a customized product, it is often very difficult to
commit to an aggressive delivery date for the finished product. However, since
we manufacture many of the component parts in-house, we are able to commit to an
aggressive delivery schedule. We have taken the necessary steps to align
ourselves with several suppliers of our raw materials so that we are not
dependent on any one supplier. In addition, we store a sufficient inventory of
raw material to supply our immediate needs. Some of our customized product
customers include Celebration City, Walt Disney World in Florida and the
Goodwill Games.

         Dectron Inc., through its subsidiary Dectron USA, operates a sales
office in the United States located in Roswell, Georgia. This office supports
the efforts of Dectron Inc.'s network of trained manufacturer's representatives
who sell Dectron Inc.'s products throughout the United States. Dectron Inc. also
has sales representatives throughout Canada and overseas. We invite our
independent sales representatives and their technicians to be trained and
certified by Dectron Inc.'s own technical staff at no cost to the attendees at a
training school run by Dectron. We also use the training school to both market
our products and demonstrate to potential buyers, first hand, the technical
excellence our employees have to offer as a service to our customers. We believe
that customer service and technical expertise are a large part of what sets us
apart from our competitors. We also market our products in trade magazines,
through industry associations and by attending trade shows where we display and
demonstrate many of our products.



                                       4
<PAGE>

Refplus

         Refplus was incorporated in 1993 to manufacture high quality modular
commercial and industrial refrigeration and air conditioning equipment for
commercial and special applications. Its products include refrigeration systems,
condensers, coils, walk-in storage coolers and freezers. In addition, Refplus
manufactures all of the heat transfer coils used by Dectron Inc. Refplus'
primary customers are supermarkets and convenience or grocery stores. Refplus'
product line, is designed around hydrofluorocarbon refrigerants ("HFC"), and
features high quality products intended to meet the needs of a broad range of
customers. See "Industry Background."

         Since inception, Refplus has manufactured some complex products for
application in fruit storage facilities, industrial baking facilities and blast
chillers for meat processing plants. We believe that our Refplus product lines
offer an excellent opportunity for future expansion. See "Expansion Plans."

         Refplus has a small network of sales representatives in Canada,
however, the majority of its sales are conducted through a network of
independent wholesalers.

 Thermoplus

         In 1987, Keepkool Transfer de Chaleur Inc. ("Keepkool"), the former
parent company of Thermoplus, purchased the manufacturing facilities of York
International in St-Jerome, Quebec. Keepkool was owned by a group of investors
active in the heating, ventilation and air-conditioning ("HVAC") industry, which
group included Ness Lakdawala, our President and CEO, to manufacture air
conditioning systems. Since inception, Thermoplus has introduced and sold a
variety of HVAC product lines through a network of Canadian wholesalers. In
1995, Thermoplus introduced specialized product lines in the field of
dehumidification and specialized air conditioning.

         Thermoplus' present product lines include dehumidification equipment,
water source air conditioners and heat pumps, portable or mobile air
conditioning equipment, industrial air handlers, air to fluid heat exchangers
and IAQ filtration products. These product lines are sold through a network of
Canadian wholesalers and HVAC representatives. Although Thermoplus' products are
sold throughout North America, with some exports outside of North America, the
majority of its revenues are derived from sales to Dectron Inc. We believe that
Thermoplus' product lines have growth potential, estimating that the present
potential for growth in both sales and manufacturing output is roughly 3 times
its present output. See "Expansion Plans."

Circul-aire

         In 1998, Dectron acquired the Circul-aire Group, consisting of Cascade
Technologies Inc. 9048-3140 Quebec, Inc. and its subsidiaries, and P.M. Wright
Ltd. (collectively referred to as "Circul-aire"). Circul-aire is considered one
of the pioneers of the air treatment industry and is a worldwide recognized
leader in the advanced technologies of gas-phase filtration and energy recovery.
Circul-aire's reputation has been built on years of research and development and
growing numbers of worldwide satisfied customers. Circul-aire's in house
laboratory and team of experienced engineers offer a systematic integrated
approach in solving ever changing and difficult environmental control problems.
Unique systems are designed and manufactured in Circul-aire's facilities to suit
specific applications. Equipment efficiency and filter media life is optimized
with Circul-aire's preventive maintenance program.

         Circul-aire's Multi-Mix TM media and integrated systems are used to
reduce the odor and corrosion potential of commercial, institutional, sewage
treatment and industrial environments. Combined with air-to-air heat exchanger
options, Circul-aire's systems recuperate valuable energy from various
airstreams. All Circul-aire systems are engineered and manufactured to withstand
the most severe industrial environments, including those containing corrosive
gases.



                                       5
<PAGE>

 Klaasco

         In 1989, Dectron acquired Klaasco, which has been an in-house
manufacturer of a wide range of metal products for more than 20 years. Most of
Klaasco's product demand has been special enclosures, electrical control panels,
control room consoles, shelters and busbars. Although most of Klaasco's products
are manufactured for Dectron Inc., it does manufacture some metal products for
sales to unaffiliated companies. We believe that the acquisition of Klaasco was
an important strategic decision and it has given us the quality assurance,
product control and a significantly greater ability to meet aggressive delivery
deadlines. As of February 1st, 2002, the operations of Klaasco were merged into
Dectron Inc.

IPAC

         IPAC was acquired by Dectron in September 1999. IPAC specializes in the
business of precision cooling products, air conditioning products and compressed
air products, and manufactures industrial products, heat transfer products,
compressed air products, engineered systems sheet metal fabrication and painting
products. We believe that IPAC's products, such as steam traps for steam coils
in HVAC systems, complement and complete our existing product lines. IPAC also
provides us with a manufacturing facility in the United States and opens a new
market to Dectron, the compressed air market, in which we believe IPAC to be
well established.

Industry Background; Product Application

         Dectron is aware of an increased public movement to encourage healthy
environments in all public places and the resulting market potential for its
products. For example, the hazards of second hand smoke have led to the ban of
cigarette smoking in most public areas. The public's demands have also been
focused on finding engineered solutions to ensure a healthy and comfortable
environment in schools and in the workplace. The theme has become much wider in
scope and has gained recognition as IAQ.

         The American Society of Heating, Refrigeration and Air Conditioning
Engineers ("ASHRAE") is the organization that sets ventilation standards in the
heating, refrigeration and air-conditioning industries for the United States and
Canada. ASHRAE has revised and re-drafted virtually all of the previous
ventilation standards with the objective to meet the public demand for healthier
indoor environments and to eliminate potential health hazards such as the
much-publicized "Sick Building Syndrome." These standards are found in Article
62-1989R "Standard for Acceptable Ventilation Rates" ("62-1989R") and have
gained the acceptance and support of many important and related institutions
such as the International Society for Indoor Air Quality ("ISIAQ") and other
worldwide environmental associations.

         We believe that the standards in 62-1989R will have a far-reaching
effect on the fresh air requirements for all new and existing public buildings
in Canada and the United States. These standards specify, among other things,
that 5 to 20 cubic feet per minute (CFM) per person of fresh air should be
introduced into all public places. The exact amount depends on the level of
activity and the capacity of the space in question.

         As a result, a market has been created by these new fresh air
requirements. HVAC experts agree that the biggest challenge and key to avoid
"Sick Building Syndrome" is to introduce fresh air and to remove humidity from
the air. Moisture and humidity has been identified as one of the main causes of
health hazards such as Legionnaire's Disease.

         Heightened IAQ awareness has created a niche market for new product
development. Dectron has developed a product line of "Make-Up Air Dehumidifiers"
that we believe can solve what we perceive as the two main problems in IAQ:
moisture and humidity. Dectron's products are capable of bringing the required
amounts of outdoor air into public areas while at the same time dehumidifying
the air, thus addressing the problems of moisture and humidity.

                                       6
<PAGE>

         Our engineers have designed our products for the IAQ market with a
reversible Water Source Heat Pump, a commonly used heating system that can be
easily connected to the popular water loop systems found today in almost every
building in every major North American city. We believe that Dectron's Make-Up
Air Dehumidifiers represent the most economical solution to meet the new
standards for healthy buildings, and have the potential to become one of our
most important and fastest growing product lines, along with our swimming pool
dehumidifiers.

         In addition, we intend to aggressively market Thermoplus' Air
Filtration & Purification product line that we believe offers a comprehensive
solution to IAQ in industrial and non-industrial applications.

         Our goal is to aggressively expand into the IAQ market, while
continuing to maintain and expand the individual markets we currently serve.

Business Strategy

         Our objective is to become North America's leading supplier of
dehumidification, refrigeration and other IAQ products, and to develop a strong
international sales network. As we intensify our marketing efforts, we will
continue to attempt to increase our market share for our various products. We
intend to place special emphasis in the short term on our Refplus products in
the United States to address the need for HFC refrigeration, and on Thermoplus'
Make-Up Air and Air Filtration & Purification products for the IAQ market.

Sales and Marketing

         Our current sales and marketing efforts take place at the subsidiary
level, with each subsidiary taking its own approach with respect to its
products.

         Dectron Inc. markets its products on several levels. Dectron Inc.
markets its products directly through trade magazines and industry associations,
as well as by attending and demonstrating its products at numerous trade shows
throughout North America. Regionally, Dectron Inc. markets its products through
non-employee sales representatives who enjoy exclusive rights to their
respective sales regions. At present, Dectron Inc. has approximately 120
regional representatives throughout North America, and expects to add more in
2002. Internationally, Dectron Inc. has sales coverage in England, Portugal,
Israel, Kuwait and Taiwan. We believe that while the international markets
provide tremendous growth opportunities for us, it is important to first develop
a strong support network.

         Thermoplus' advertising and marketing is limited because the majority
of its revenues are derived from sales made to Dectron Inc. and Refplus.
Thermoplus primarily sells its products through wholesalers in Canada, and
through manufacturing representatives, one based in Canada and the other based
in the United States. However, we also market Thermoplus' products, including
its Air Filtration & Purification product line for the IAQ market, through
Dectron Inc.'s sales representatives.

         Refplus' marketing and advertising is currently done almost exclusively
through trade magazines. Most of its sales are through wholesalers and original
equipment manufacturers. Generally, Refplus does not sell directly to the end
user. Its sales force currently consists of service personnel who are based at
Dectron's headquarters, outside sales people based in Canada and in the United
States, and two sales agencies covering Canada and the United States with
approximately 22 representatives. We believe that with the phasing out of
hydrochlorofluorocarbons ("HCFC") refrigeration products and the legislative
push towards HFC refrigeration products (such as Refplus products), Refplus'
product line is well suited for an aggressive growth commitment.

         Circul-aire markets its products on several levels. In Canada, its
products are sold through a network of sales agents that cover every province
and major market area. In the United States, Circul-aire's products (air
filtration and energy recuperation) are sold through a network of core
representation organizations. We are presently looking for additional
representatives to more fully cover the United States market.

                                       7
<PAGE>

         In Asia and Europe, Circul-aire's market is extended through agents
located in each major market. Circul-aire has also opened branch offices staffed
with sales, engineering and service personnel in Jakarta, Indonesia, Bangalore,
India and Vancouver, Canada.

         Circul-aire advertises in industry journals, magazines, and its website
where prospective customers can obtain information on its products and also
actively participates in trade associations and tradeshows.

         Klaasco does not currently market a significant amount of its products
to outside purchasers. The majority of Klaasco's revenues were derived from
sales to Dectron Inc.

         IPAC markets its products through regional representatives in the
United States and Canada.

Expansion

         We have grown from a single product and single-market company into a
group of companies that cover a full range of humidity control, IAQ control,
energy recycling and refrigeration products and air purification, and have the
production potential for both custom engineered and mass-produced products. We
believe that the introduction of a complete line of products to penetrate all
segments of the IAQ market will put us in the unique position of being one of
the only fully integrated companies of our kind. We expect that with a strong
sales and marketing strategy to promote these and other subsequent products, we
will experience a period of substantial growth, although there can be no
assurance thereof. We plan to continuously inform our current and new targeted
customers about our products through technical seminars, product exhibitions and
publication of major events in industry journals.

         We intend to strengthen our position in the United States by
establishing multiple regional sales and distribution offices. We believe that
our active presence in the United States with Dectron products will allow us to
closely track the performance of our products in the market and will help
solidify alternate distribution networks for our Refplus product. We also intend
to aggressively pursue other international markets, starting with South America,
followed by the Caribbean and Mexico.

         The present need for specialized IAQ equipment in North America
represents a market, estimated by our management to be in the multi-million
dollar range, in which only a limited number of companies have presently taken
the lead. We believe that with our team of engineering and design specialists,
Dectron can be on the leading edge as a manufacturer and supplier of specialized
IAQ equipment into the next century.

Competition

         The industries in which we compete are highly competitive. We compete
against a number of local, regional and national manufacturers in each of our
business segments, many of these competitors have been in existence longer than
us and some of which have substantially greater financial resources than us. We
compete on various basis, including price, quality and ability to meet delivery
schedules. Dectron Inc. competes with, among others, DesertAire and Engineered
Air, and Refplus and Thermoplus compete with, among others, Cancoil and
Keeprite. Circul-aire competes with, among others, Purafil and Unisob. IPAC
competes with, among others, Pomona and Canatal. We believe that competition
from new entrants, especially in the IAQ markets will come, if at all, from
large corporations which may be able to compete with us on the basis of price,
and as a result may have a material adverse affect on our results of operations.
In addition, there can be no assurance that other companies will not develop new
or enhanced products that are either more effective than our products, or would
render our products non-competitive or obsolete.

                                       8
<PAGE>

Employees

         As of April 26, 2002, Dectron (including our subsidiaries) employed a
total of approximately 429 full-time employees, 5 of which are in executive
positions, 46 of whom are engaged in engineering and research and development,
43 of whom are engaged in sales and related services, 40 of whom are in
administration, and the remainder of which are in production. An in-house union
represents 47 of our employees, all of which work at Thermoplus. Certain terms
of their employment are part of a collective bargaining agreement that expires
in 2005. Management considers its relations with its employees to be
satisfactory.




Patents and Trademarks

         We have two United States and two Canadian patents. The patents expire
between 2007 and 2015. Three of the patents relate to swimming pool
dehumidifiers and the other relates to the Method and Apparatus for Controlling
Heat Rejection in a Refrigeration System.

         We have trademarked the names "Dectron" and "Dry-O-Tron" in both the
United States and Canada. The trademarks come up for renewal between 2007 and
2015. We also hold the trademark in "MultiMix" and "MM Multi-Mix" in the United
States and Canada. The MultiMix and MMMulti-Mix trademarks will be due for
renewal in the year 2014. In addition, we hold the trademark in "CIRCUL-AIRE" in
the United States and Canada, which was renewed in 1999.

ITEM 2.  PROPERTIES

         We maintain our executive office at leased premises located at 4300
Poirier Blvd., Montreal, Quebec H4R 2C5. This lease expires January 31, 2005. We
also have nine manufacturing facilities, of which six are leased and three are
owned. Eight of our manufacturing facilities are located in or near Montreal,
Quebec, and one is located in Niagara Falls, New York. The manufacturing
facilities, which we own, are located in St. Jerome, Quebec, Boucherville,
Quebec, and Niagara Falls, New York. The facilities are in good condition and do
not require any significant capital expenditure. We maintain property insurance
on the three owned manufacturing facilities in an amount that we believe to be
sufficient. Of the six leased facilities, two of the leases expire on January
31, 2005, one June 30, 2010, one January 31, 2003, one October 31, 2016 and one
December 31, 2006. We also lease, for a monthly rent of $694, a 1,000 square
foot sales facility in Roswell, Georgia. In addition, we lease, for a monthly
rent of approximately $1,166 a 3,700 square foot sales and warehousing facility
in Toronto, Ontario. And also, we lease a 4,000 square foot facility in
St-Hippolyte, Quebec for approximately $ 592. Our facilities have an aggregate
of approximately 479,000 square feet. We pay an aggregate of approximately
$43,510 rent per month. We believe that suitable additional space will be
available in the future on commercially reasonable terms.

         We are seeking International Quality Standard ISO-9001certification for
our Dectron Inc. facility and International Quality Standard ISO-9002
certification for our Thermoplus facility. ISO 9001 and ISO 9002 require the
facility to meet certain stringent requirements established in Europe but
adopted throughout the world which ensure that facilities' manufacturing
processes, equipment and associated quality control systems will satisfy
specific customer requirements. We believe that ISO certification will benefit
us in the markets in which we compete. There is no assurance that ISO
certification will be obtained in the near future, if at all.

ITEM 3.  LEGAL PROCEEDINGS

         There are no material legal proceedings now pending or threatened
against the Company.



                                       9
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to the vote of the security holders.



                                       10
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         Our common stock and warrants are traded on the Nasdaq SmallCap Market
and the Boston Stock Exchange and have been so traded since the completion of
our initial public offering on October 5, 1998. Our common stock is listed on
the Nasdaq SmallCap Market under the symbol "DECT" and on the Boston Stock
Exchange under the Symbol "DRN." Our warrants are listed on the Nasdaq SmallCap
Market under the symbol "DECT W" and on the Boston Stock Exchange under the
Symbol "DRN&W." As of April 26, 2002, we had 2,795,000 shares of common stock
and 1,150,000 warrants outstanding. The following table sets forth the high and
low sales prices for our common stock and warrants as reported on the Nasdaq
SmallCap Market.

<TABLE>
<CAPTION>
                                                     COMMON STOCK                     WARRANTS

                                                 High            Low             High            Low

<S>                                             <C>             <C>             <C>             <C>
Fiscal year ended January 31, 2002:             $7.450          $2.770          $1.120          $0.110

First quarter (2/1/01 thru 4/30/01)             $4.125          $3.250          $0.500          $0.130
Second quarter (5/1/01 thru 7/31/01)            $3.950          $2.770          $0.500          $0.120
Third quarter ( 8/1/01 thru 10/31/01)           $7.450          $3.050          $1.120          $0.110
Fourth quarter ( 11/1/01 thru 1/31/02)          $6.400          $4.280          $0.850          $0.500

Fiscal year ended January 31, 2001:             $5.688          $2.000          $0.875          $0.125

First quarter (2/1/00 thru 4/30/00)             $4.250          $3.000          $0.875          $0.375
Second quarter (5/1/00 thru 7/31/00)            $3.063          $2.000          $0.625          $0.250
Third quarter ( 8/1/00 thru 10/31/00)           $5.688          $2.000          $0.750          $0.125
Fourth quarter ( 11/1/00 thru 1/31/01)          $4.625          $3.750          $0.500          $0.250
</TABLE>



         As of April 26, 2002, there were 31 shareholders of record and
approximately 250 beneficial owners.

         On April 26, 2002, the last sale price of our common stock and warrants
as reported on the Nasdaq SmallCap Market was $5.90 and $0.94 respectively.

                                 Dividend Policy

         We have never paid or declared dividends on our common stock. The
payment of cash dividends, if any, in the future, is within the discretion of
our Board of Directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors. We intend to retain future
earning for use in our business.


                                       11
<PAGE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the selected historical financial data, financial statements and notes
thereto and the other historical financial information of Dectron contained
elsewhere in this Annual Report on Form 10-KSB. The statements contained in this
Annual Report on Form 10-KSB that are not historical are forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Exchange Act of 1934, including statements
regarding Dectron's expectations, intentions, beliefs or strategies regarding
the future. Forward-looking statements include Dectron's statements regarding
liquidity, anticipated cash needs and availability and anticipated expense
levels. All forward-looking statements included in this prospectus are based on
information available to Dectron on the date hereof, and Dectron assumes no
obligation to update any such forward-looking statement. It is important to note
that Dectron's actual results could differ materially from those in such
forward-looking statements.

Overview

         Dectron has been in operation since June 1977 and has grown from a
single product and single market company into a group of manufacturers in order
to address the three most important factors affecting indoor air conditions:
temperature, humidity and contaminant control. We secure our contracts through a
network of representatives. We are not dependent upon any major customer for a
significant portion of its revenues.

         Dectron's objective is to become a leading force in the IAQ market by
addressing combined technology niche applications and by providing superior
engineering services and product quality. Dectron intends to devote significant
efforts to the development of equipment for the IAQ market. Management
anticipates that the IAQ market will have enormous growth in the next 25 years.
We believe that there is a need in the North American market for specialized IAQ
equipment and this represents a tremendous opportunity. Notwithstanding the
present economic slowdown, Management foresees a stable market demand,
particularly in the humidity and temperature control side of the business.

         Dectron has two subsidiaries that each specialize on a particular
market segment of the IAQ market, Circul-aire, a manufacturer of contaminant
control solutions, and IPAC, a manufacturer of precision air conditioning
equipment.


Results of Operations

Fiscal year ended January 31, 2002 ("Fiscal 2002") compared to fiscal year ended
January 31, 2001 ("Fiscal 2001")

         Revenues for the year ended January 31, 2002 were $33,285,958, a 5.1%
decrease over prior year revenues of $35,061,903.

         Gross profit decreased by $1,016,572 to $11,347,801 over the same
period. In comparison to the 5.1% decrease in revenue gross profit decreased by
8.2%.

         Operating expenses remained stable during fiscal year 2002.

         Selling and marketing expenses increased $51,378 in Fiscal 2002. As a
percentage of revenues, selling and marketing expenses increased to 16.1% from
15.1%.

                                       12
<PAGE>

         General and administrative expenses increased by $70,398 to $3,166,401.
As a percentage of revenues, general and administrative increased to 9.5% from
8.8% of sales..

         Depreciation increased by $46,907 to $1,568,065 due to the addition of
capital assets. As a percentage of sales, depreciation increased to 4.7% from
4.3%.

         Financing expenses decreased by $89,267 from $1,458,861 to $1,369,594.
As a percentage of revenues, financing expenses remained stable at 4.1%.


         Loss before income taxes was $126,101 a decrease of $1,095,988 over the
comparative period.

         Tax expenses decreased by $ 285,627 mainly because of the decrease in
taxable income and loss carry forwards.

         As a result, Dectron reported net income of $47,065.


Fiscal year ended January 31, 2001 ("Fiscal 2001") compared to fiscal ended year
January 31, 2000 ("Fiscal 2000")

         Revenues for the year ended January 31, 2001 were $35,061,903, a 11.7%
increase over prior year revenues of $31,402,954. This increase was in part due
to stable conditions in Dectron's principal market, the United States of
America, and also stable economic conditions also in Canada, Dectron's secondary
market, and 12 months of results of IPAC 2000.

         Gross profit increased by $1,130,075 to $12,364,373 over the same
period. In comparison to the 11.7% increase in revenue gross profit slightly
increased by 0.5%.

         Operating expenses increased significantly during fiscal year 2001.

         Selling and marketing expenses increased $47,808 in Fiscal 2001. As a
percentage of revenues, selling and marketing expenses decreased to 15.1% from
16.7%.

         General and administrative expenses increased by $1,030,848 to
$3,096,053. As a percentage of revenues, general and administrative increased to
8.8% from 6.5% of sales. Both percentage and dollar amount increases were due
partly to the integration of IPAC's personnel.

         Depreciation increased by $333,496 to $1,521,158 due to the addition of
capital assets. As a percentage of sales, depreciation increased from 3.7% to
4.3% in fiscal 2001.

         Financing expenses increased by $784,574 from $674,287 to $1,458,861.
As a percentage of revenues, financing expenses increased from 2.1% to 4.1%.

         Income before income taxes was $969,887 a decrease of $1,066,651 over
the comparative period. Relative to sales, income before income taxes decreased
from 6.5% in Fiscal 2000 to 2.8% in Fiscal 2001.

         Income tax expenses as a percentage of taxable income decreased from
44.6% for 2000 to 11.6% for 2001. Tax expenses decreased by $ 797,314 mainly
because of the decrease in taxable income and loss carry forwards.

                                       13
<PAGE>

         As a result, Dectron reported net income of $857,426, a decrease of
1.1% in relation to sales.

         Dectron realized good financial results in Fiscal 2000 and Fiscal 1999
that fell within our expectations, although compared with previous years, our
net margins were negatively affected by future investments incurred in Fiscal
2001. Our business plan called for (1) increasing international presence through
an extensive marketing campaign, (2) decreasing backlog by bringing on more
plant capacity and (3) innovating our product lines through acquisitions and
continuing research and development.

         Most of the negative impact on our margins has already been absorbed
and this year the positive financial effect of the investment will begin to be
realized, which we believe will position Dectron for bottom line growth.


Liquidity and Capital Resources


         In Fiscal 2002, the Company generated a positive cash flow from
operating activities of $2,056,741 due mainly to lower accounts receivable and
inventory level. In Fiscal 2001, the Company generated a negative cash flow from
operating activities of $237,152 due mainly to higher accounts receivable

         The principal source of cash was a decrease in inventory of $1,513,212,
in accounts receivable of $1,489,912, and amortization and depreciation in the
amount of $1,568,065. The principal use of cash was a decrease in accounts
payable of $2,830,779

         Cash flow from investing activities was reduced by $717,474 mainly as a
result of the acquisition of equipment for a total of $670,224.

         Financing activities used net cash flow in the amount of $1,502,356.
The principal uses of cash flow from financing was repayments of long-term debt
in the amount of $1,296,591.

         Net cash flow used after all activities was $ 58,721.

Fiscal 2002

         In Fiscal 2002, the Company renewed a secured credit arrangement with
National Bank of Canada. This new facility included an aggregated credit line of
Cdn $ 16,500,000 of which Cdn $8,250,000 can be financed through Bankers
Acceptance. The amount available to the Company is equal to 75% of "eligible
accounts receivable" as defined in the Line of Credit Agreement, plus 50% of the
inventory values, net of work in process, up to a maximum advance against
inventory of approximately Cdn $ 7,500,000. Dectron's borrowings under the Line
of credit bears interest at Canadian prime plus .25%, which at January 31, 2002
amounted to 3.25%. Interest on any borrowings is payable monthly. The Company is
in full compliance with all of the banking covenants (including financial
covenants and ratios) and is required to report to its bankers on a monthly
basis. The Company finances its operations mainly through the use of Bankers
Acceptance bearing an average lending rate of prime. All borrowings are
collateralized by the assets of the Company.


                                       14
<PAGE>

Fiscal 2001

         In Fiscal 2001, the Company renewed a secured credit arrangement with
National Bank of Canada. This new facility included an aggregated credit line of
Cdn $ 13,000,000 of which Cdn $6,000,000 can be financed through bankers
acceptance. The amount available to the Company is equal to 75% of "eligible
accounts receivable" as defined in the Line of Credit Agreement, plus 50% of the
inventory values, net of work in process, up to a maximum advance against
inventory of approximately $ 5,000,000. Dectron's borrowings under the Line of
credit bears interest at Canadian prime plus .25%, which at January 31, 2001
amounted to 7.25%. Interest on any borrowings is payable monthly. The Company is
in full compliance with all of the banking covenants (including financial
covenants and ratios) and is required to report to its bankers on a monthly
basis. The Company finances its operations mainly through the use of Bankers
Acceptance bearing an average lending rate of prime. All borrowings are
collateralized by the assets of the Company.

         In Fiscal 2001, the Company also secured credit arrangement with
National Bank of Canada in New York. This new facility included an aggregated
credit line of US $ 1,250,000. The amount available to the Company is equal to
80% of "eligible accounts receivable" as defined in the Line of Credit
Agreement, plus 60% of the inventory values, net of work in process, up to a
maximum advance against inventory of approximately $ 625,000. Dectron's
borrowings under the Line of credit bears interest at American prime plus .5%.
Interest on any borrowings is payable monthly.

         In February 2000, Dectron renegotiated a bank loan and replaced it with
a term loan in the amount of $2,527,000 USD bearing interest at the Bank's
American Prime Rate plus 1% for a term of 5 years and a mezzanine loan in the
amount of $ 1,000,000 USD bearing interest at the Bank's American Prime Rate
plus 3% for a term of three years.

         In February 2000, the Company entered into a mortgage note in the
amount US$1,652,000 and equipment note in the amount of US$406,000 with the
National Bank of Canada both bearing interest a American prime plus .75%.

         In August 2000, the Company entered into a note agreement with National
Bank of Canada for the purchase of new equipment bearing interest at the
American prime rate plus .75%

         In August 2000, the Company entered into two financial leases for a
total amount of Cdn $951,420 to finance equipment, both bearing interest at
8.48%

         In November 2000, the Company entered into two term loans for a total
of $ 700,000 to finance capital acquisitions bearing interest at prime plus .75%

Foreign Exchange

         The Company is a Canadian company with U.S. sales amounting to
approximately 70% of it's total sales while the majority of Dectron's expenses
are incurred in Cdn $. Due to the relatively high proportion of sales in U.S.$,
Dectron's results could be adversely affected by upward variations in the value
of the Canadian dollar. As of January 31, 2002, the Company did not have a
formal foreign exchange policy in effect.


                                       15
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS


         The financial statements are included at the end of this Annual Report
on Form 10-KSB at the pages included below.
<TABLE>
<CAPTION>
                                                                                                               Page
Financial Statements:                                                                                        Number
                                                                                                             ------

<S>                                                                                                <C>
Report of Independent Auditors................................................................................F - 1

Consolidated Balance Sheets for the
  years ended January 31, 2002 and January 31, 2001 .................................................F - 2 to F - 3

Consolidated Statements of Earnings for the
  years ended January 31, 2002, 2001 and 2000.................................................................F - 4

Consolidated Statements of Cash Flows
  for the years ended January 31, 2002, 2001 and 2000................................................F - 5 to F - 7

Consolidated Statements of Stockholders' Equity
  for the years ended January 31, 2002, 2001 and 2000.........................................................F - 8

Notes to Consolidated Financial Statements..........................................................F - 9 to F - 22
</TABLE>




ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         The Company has had no changes in or disagreements with its
Accountants.


                                       16
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

         The officers and directors of Dectron, and further information
concerning them, are as follows:


<TABLE>
<CAPTION>
Name                                             Age     Position
----                                             ---     --------

<S>                                              <C>     <C>
Ness Lakdawala                                   68      Chairman of the Board of Directors, President and
                                                         Chief Executive Officer

Reinhold Kittler                                 64      Executive Vice President and Director

Roshan Katrak                                    58      Vice President of Human Relations and Director

Mauro Parissi                                    36      Chief Financial Officer, Secretary and Director

Michel Lecompte                                  52      Vice President of Operations of Refplus

David Lucas                                      42      Vice President of Dectron Inc.

Leena Lakdawala                                  34      Executive Vice President and Director

Richard Ness                                     38      Director

Liam Cheung                                      32      Director

Gilles Richard                                   63      Director
</TABLE>

---------


         Each director is elected for a period of one year at our annual meeting
of stockholders and serves until the next such meeting and until his or her
successor is duly elected and qualified. Directors may be re-elected annually
without limitation. Officers are appointed by, and serve at the discretion of,
our Board of Directors (the "Board").

         Set forth below is a biographical description of each of our directors
and executive officers based on information supplied by each of them.

         Ness Lakdawala has served as the President, Chief Executive Officer and
Chairman of Dectron since our inception, and has also served as the President
and Chief Executive Officer of Dectron Inc. since 1994. Prior to joining Dectron
Inc., Mr. Lakdawala was President of Blanchard Ness Limited, a company which he
founded in 1976. From 1987 to present, Mr. Lakdawala has served as the President
of Thermoplus. In January 1996, Thermoplus filed a proposal under the provisions
of the Bankruptcy Act which gave full payment to secured creditors who filed a
proof of claim. From 1987-1988, Mr. Lakdawala was Chairman of the Heating
Refrigeration Air Conditioning Institute of Canada. Mr. Lakdawala has also
served as the Governor of the American Society of Heating, Refrigeration and Air

                                       17
<PAGE>

Conditioning Engineers, Inc. ("ASHRAE"), the organization that sets ventilation
standards in Canada and the United States. Mr. Lakdawala is currently a member
of ASHRAE and the Refrigeration Service Engineers Society. Ness Lakdawala is the
husband of Roshan Katrak and the father of Leena Lakdawala.

         Reinhold Kittler has served as Executive Vice President and a Director
of Dectron since our inception, and has also served as the Chairman of Dectron
Inc. since 1994. From 1985 to 1993, Mr. Kittler was President of Dectron Inc. He
currently teaches refrigeration engineering at Vanier College in Montreal,
Quebec. Mr. Kittler has contributed extensively to the ASHRAE Handbook. Mr.
Kittler is a member of numerous industry related societies, including the Order
of Engineers of Quebec (since 1973), the International Institute of Ammonia
Refrigeration (since 1992), the Air Conditioning and Refrigeration Institute
(since 1996), the Refrigeration Services Engineers Society (since 1979) and
ASHRAE (since 1974). Mr. Kittler is frequently a guest speaker at industry
related symposiums.

         Roshan Katrak has served as Vice President of Human Relations of
Dectron since our inception, and has served in the same capacity with Dectron
Inc. since 1994. She has also served as a Director of Dectron since 1998. From
1976 to 1994, she was a Director of Blanchard Ness Limited, and from 1987 to
present has been Vice President of Human Relations for Thermoplus. In January
1996, Thermoplus filed a proposal under the provisions of the Bankruptcy Act
which gave full payment to secured creditors who filed a proof of claim. Mrs.
Katrak received her Honors Degree in Psychology in 1964. Roshan Katrak is the
wife of Ness Lakdawala and the mother of Leena Lakdawala.

         Mauro Parissi, C.A. has served as the Chief Financial Officer,
Secretary and a Director of Dectron since our inception, and has also served as
the Controller of Dectron Inc. since 1996. From 1995-1996, Mr. Parissi was an
auditor with the firm of Mizgala & Cie. From 1990-1995, Mr. Parissi was an
auditor with the firm of Hart, David Lloyd, F.C.A., C.I.P. Mr. Parissi is
currently a member of The Canadian Institute of Chartered Accountants and The
Order of Chartered Accountants of Quebec. Mr. Parissi received his graduate
diploma in Public Accountancy from McGill University in 1995.

         Michel Lecompte has served as the Vice President of Operations since
our inception and President of Refplus since 1994. From 1977 to 1994, Mr.
Lecompte was with Blanchard Ness as both Chief Engineer and Estimator. Mr.
Lecompte was involved in estimating commercial and industrial HVAC systems as
well as updating operating and maintenance procedures to improve existing
equipment efficiency. Mr. Lecompte also provided technical guidance to
construction departments and identified evaluated and resolved problems. Mr.
Lecompte is a member of ASHRAE and is a voting member of ASHRAE's Technical
Committee which establishes worldwide acceptance of HVAC standards. In addition,
Mr. Lecompte conducts many HVAC seminars focusing on refrigeration and heat
recovery. Mr. Lecompte is also a member of the Refrigeration Service Engineers
Society.

         David Lucas has served as the Vice President of Dectron Inc. since
1996. From 1993 to 1996, Mr. Lucas was a management consultant for the Federal
Cooperative Housing Stabilization Fund, where he managed loan portfolios and
provided management consulting services. From 1991 to 1993, Mr. Lucas was
Director of Marketing for Dectron Inc. He received his Bachelor of Science in
Engineering Physics from Queen's University in Kingston Ontario in 1981, and his
MBA from the University of Western Ontario in 1988. Mr. David Lucas has tendered
his resignation effective June 2002 which resignation has been accepted by
Management.

         Leena Lakdawala has served as Executive Vice President and a Director
of Dectron since our inception, and has also served as Vice President of
Production and Administration for Dectron Inc. since 1994. She is currently a
member of the Heating Refrigeration and Air Conditioning Institute. Mrs.
Lakdawala received her B.A from Concordia University in 1993. Leena Lakdawala is
the daughter of Ness Lakdawala and Roshan Katrak.

         Richard Ness has served as a Director of Dectron since 1998. Mr. Ness
is president and chief operating officer of Penson Financial Services Canada
Inc., a firm offering technical and operational services to investment dealers
in Canada. Previously, he was Vice President client services and member seat
holder of the Toronto Stock Exchange with Le Groupe Option Retraite, Inc. and
investment dealer with memberships on the Montreal and Toronto stock exchanges.
Prior to joining Option Retraite, he was vice president of operations at Marleau
Lemire Securities and chief financial officer of Marleau Lemire U.S.A., an
N.A.S.D. member firm.


                                       18
<PAGE>


         Liam Cheung has served as a Director of Dectron since 2001. Since 1997,
Mr. Cheung is the President and Founder of IC Education, a new economy
e-learning company delivering leading edge technology through a unique
combination of business, education and technology. From 1992 to 1997, he served
as Executive Vice-President, Fixed Income of Marleau, Lemire Securities Inc.
From 1990 to 1992, Mr. Cheung was an actuarial specialist for Towers Perrin. Mr.
Cheung received a Bachelor of Mathematics with Distinction from the University
of Waterloo in 1990 and is an Associate of the Society of Actuaries.

         Gilles Richard has served as a Director of Dectron since 2001. Mr.
Richard is a semi-retired business man who was previously the President of Le
Circuit Lincoln Mercury, the sixth largest dealership in Canada. Mr. Richard was
also involved with partner in a distributorship of lift-truck (Mitsubishi's
M-Lift), two computer companies which created software applications car
dealership, and most recently the construction of commercial and residential
buildings. Over the years, Mr. Richard was a director or officer of various
organizations such as the Nada (National Automobile Association) and CADA
(Canadian Automobile Association)

Indemnification of Officers and Directors

         Our Bylaws provide that we shall indemnify to the fullest extent
permitted by Canadian law our directors and officers (and former officers and
directors). Such indemnification includes all costs and expenses and charges
reasonably incurred in connection with the defense of any civil, criminal or
administrative action or proceeding to which such person is made a party by
reason of being or having been our officer or director if such person was
substantially successful on the merits in his or her defense of the action and
he or she acted honestly and in good faith with a view to our best interests,
and if a criminal or administrative action that is enforced by a monetary
penalty, such person had reasonable grounds to believe his or her conduct was
lawful.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted our directors, officers and
controlling persons and our underwriters pursuant to the foregoing provisions,
or otherwise, we have been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by us of expenses, incurred or paid by one of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person or by
our underwriters in connection with the securities being registered, we will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.


                                       19
<PAGE>

Item 10. EXECUTIVE COMPENSATION

         The following table sets forth certain information regarding
compensation paid by Dectron during each of the last three fiscal years to our
Chief Executive Officer and to each of our executive officers who earned in
excess of $100,000 during the year ended January 31, 2002.

                           Summary Compensation Table

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
          Name and                                                  Restricted                          Other
         Principal                          Annual                    Stock                             Com-
          Position              Year      Salary (1)      Bonus       Awards        Options/SARs       Pensation
-------------------------------------------------------------------------------------------------------------------

<S>                           <C>         <C>             <C>      <C>             <C>                <C>
Ness Lakdawala                2002         $142,380        -0-          -0-            -0-               -0-
Chairman of the Board of      2001         $140,647        -0-          -0-            -0-               -0-
Directors, President, and     2000         $140,647        -0-          -0-            -0-               -0-
Chief Executive Officer

-------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) This reflects the aggregate salaries paid to Mr. Lakdawala during the fiscal
years presented by Dectron, Refplus and Thermoplus.

Employment Agreements

         We entered into an employment agreement with Mr. Ness Lakdawala, our
Chief Executive Officer on October 5, 1998, the effective date of our initial
public offering. The employment agreement is for a term of two years, renewable
for additional one-year periods. The employment agreement entitled Mr. Lakdawala
to an annual salary of $200,000, adjusted annually for increases in the Consumer
Price Index. In the event that we are subject to a takeover or a change of
control event, Mr. Lakdawala is entitled to a bonus equal, on an after tax
basis, to five times his then current annual base salary. Mr. Lakdawala's
employment agreement contains a non-competition provision, which forbids him
from engaging in a competitive business during his employment and for a period
of one year thereafter. Mr. Lakdawala's employment agreement has been extended
for an additional two years at the same conditions as above.

         We do not currently have employment agreements with any of our other
officers or directors.

Board Compensation Report

Executive Compensation Policy

         Dectron's executive compensation policy is designed to attract,
motivate, reward and retain the key executive talent necessary to achieve our
business objectives and contribute to our long-term success. In order to meet
these goals, Dectron's compensation policy for our executive officers focuses
primarily on determining appropriate salary levels and providing long-term
stock-based incentives. To a lesser extent, the Dectron's compensation policy
also contemplates performance-based cash bonuses. Dectron's compensation
principles for the Chief Executive Officer are identical to those of Dectron's
other executive officers.

         Cash Compensation. In determining its recommendations for adjustments
to officers' base salaries for Fiscal 2002, we focused primarily on the scope of
each officer's responsibilities, each officer's contributions to Dectron's
success in moving toward its long-term goals during the fiscal year, the
accomplishment of goals set by the officer and approved by the Board for that
year, our assessment of the quality of services rendered by the officer,
comparison with compensation for officers of comparable companies and an
appraisal of our financial position. In certain situations, relating primarily
to the completion of important transactions or developments, we may also pay
cash bonuses, the amount of which will be determined based on the contribution
of the officer and the benefit to Dectron of the transaction or development.

                                       20
<PAGE>

         Equity Compensation. The grant of stock options to executive officers
constitutes an important element of long-term compensation for the executive
officers. The grant of stock options increases management's equity ownership in
us with the goal of ensuring that the interests of management remain closely
aligned with those of our stockholders. The Board believes that stock options in
Dectron provide a direct link between executive compensation and stockholder
value. By attaching vesting requirements, stock options also create an incentive
for executive officers to remain with us for the long term.

Chief Executive Officer Compensation

         As indicated above, the factors and criteria upon which the
compensation of Ness Lakdawala, our Chief Executive Officer, is based are
identical to the criteria used in evaluating the compensation packages of the
other executive officers of Dectron. The Chief Executive Officer's individual
contributions to Dectron include his leadership role in establishing and
retaining a strong management team, developing and implementing our business
plans and attracting investment capital to Dectron. In addition, we have
reviewed compensation levels of chief executive officers at comparable companies
within our industry.

Other Compensation

         Outside directors may be paid an honorarium for attending meetings of
the Board of Directors of Dectron, in an amount that management anticipates will
not exceed $500 per meeting.

Stock Option Plans

1999 Stock Option Plan

         We have adopted a Stock Option Plan (the "1999 Plan") pursuant to which
650,000 shares of Common Stock are reserved for issuance, 334,000 options are
currently issued and outstanding.

          On September 2, 1999, the Board granted options under our 1999 Stock
Option Plan to certain members of our Board and certain employees. Leena
Lakdawala, Roshan Katrak, Mauro Parissi, and Richard Ness were granted 60,000,
60,000, 18,000 and 8,000 options, respectively. 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 will be fully exercisable on November 4, 2003, and
expire on November 4, 2004. The exercise price of the options is $3.00

         The 1999 Plan is 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 1999 Plan is effective for a period of five years, expiring in
2003. Options may be granted to officers, directors, consultants, key employees,
advisors and similar parties who provide us with their skills and expertise. The
1999 Plan is designed to enable management to attract and retain qualified and
competent directors, employees, consultants and independent contractors. Options
granted under the 1999 Plan may be exercisable for up to five years, and shall
be at an exercise price all 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 1999 Plan, and are exercisable only by the
participant during his or her lifetime. Change in control includes (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.

                                       21
<PAGE>

         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 three months
to exercise, except for termination for cause, which results in immediate
termination of the option.

         The exercise price of an option may not be less than the fair market
value per share of Common Stock on the date that the option is granted in order
to receive certain tax benefits under the Income Tax Act of Canada (the "ITA").
The ITA requires that the exercise price of all future options will be at least
85% of the fair market value of the Common Stock on the date of grant of the
options. A benefit equal to the amount by which the fair market value of the
shares at the time the employee acquires them exceeds the total of the amount
paid for the shares or the amount paid for the right to acquire the shares shall
be deemed to be received by the employee in the year the shares are acquired
pursuant to paragraph 7(1) of the ITA. Where the exercise price of the option is
equal to the fair market value of the shares at the time the option is granted,
paragraph 110(1)(d) of the ITA allows a deduction from income equal to one
quarter of the benefit as calculated above. If the exercise price of the option
is less than the fair market value at the time it is granted, no deduction under
paragraph 110(1)(d) is permitted. Options granted to any non-employees, whether
directors or consultants or otherwise will confer a tax benefit in contemplation
of the person becoming a stockholder pursuant to subsection 15(1) of the ITA.

         Options under the 1999 Plan must be issued within five years from the
effective date of the 1999 Plan.

         Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by Dectron become available again for issuance
under the 1999 Plan.

         The 1999 Plan 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 1999 Plan may not be
increased without the consent of our stockholders.

2001 Stock Option Plan

         We also adopted the 2001 Stock Option Plan (the "2001 Plan") pursuant
to which 500,000 shares of Common Stock are reserved for issuance, 121,000
options are currently issued and outstanding.

         On January 4, 2002, the Board granted options under our 2001 Stock
Option Plan to certain members of our Board and certain employees. Leena
Lakdawala, Roshan Katrak, Mauro Parissi, Richard Ness, Liam Cheung, and Gilles
Richard were granted 15,000, 15,000, 5,000, 2,500, 3,000 and 3,000 options,
respectively. 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 will
be fully exercisable on January 4, 2006, and expire on January 4, 2007. The
exercise price of the options is $4.20

         The 2001 Plan is 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 us with their skills and expertise. The
2001 Plan is designed to enable management to attract and retain qualified and
competent directors, employees, consultants and independent contractors. Options
granted under the 2001 Plan may be exercisable for up to ten years, and shall be
at an exercise price all 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 2001 Plan, and are exercisable only by the
participant during his or her lifetime. Change in control includes (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.

                                       22
<PAGE>

         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 three months
to exercise, except for termination for cause, which results in immediate
termination of the option.

         The exercise price of an option may not be less than the fair market
value per share of Common Stock on the day immediately preceding the date that
the option is granted in order to receive certain tax benefits under the Income
Tax Act of Canada (the "ITA"). The ITA requires that the exercise price of all
future options will be at least 85% of the fair market value of the Common Stock
on the day immediately preceding the date of grant of the options. A benefit
equal to the amount by which the fair market value of the shares at the time the
employee acquires them exceeds the total of the amount paid for the shares or
the amount paid for the right to acquire the shares shall be deemed to be
received by the employee in the year the shares are acquired pursuant to
paragraph 7(1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non-employees, whether directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a stockholder pursuant to subsection 15(1) of the ITA.

         Options under the 2001 Plan must be issued within ten years from the
effective date of the 2001 Plan.

         Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by Dectron become available again for issuance
under the 2001 Plan.

         The 2001 Plan 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 2001 Plan may not be
increased without the consent of our stockholders.


                                       23
<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information as of April 26, 2001
with respect to each beneficial owner of 5% or more of the outstanding shares of
our common stock, each of our officers and directors, and all of our officers
and directors as a group:

<TABLE>
<CAPTION>
       Names and Address of Beneficial                Amount and Nature of              Percentage of Shares
               Owner (1)                             Beneficial Ownership(2)                 Outstanding
               ---------                             -----------------------                 -----------

<S>                                                  <C>                                <C>
Ness Lakdawala                                             1,703,519(3)                          60.3%

Roshan Katrak                                              1,703,519(4)                          60.3%

Reinhold Kittler                                                   0                                 *

Mauro Parissi                                                 35,100(5)                           1.3%

Ralph Kittler                                                 12,000(6)                              *

Dave Lucas                                                    75,000(7)                           2.7%

Richard Ness                                                  11,100(8)                              *

Leena Lakdawala                                               91,800(9)                           3.2%

Michel Lecompte                                               19,474(10)                             *

Liam Cheung                                                    2,000                                 *

Gilles Richard                                                   300                                 *

All directors and officers
As a group (11 persons)
(3)-(9)                                                    1,950,293                             67.4%
</TABLE>

* Less than one %.

(1)  The address of each individual is c/o Dectron Internationale Inc., 4300
     Poirier Blvd., Montreal, Quebec, Canada H4R 2C5.

(2)  Based upon information furnished to us by the directors and executive
     officers or obtained from our stock transfer books. We are informed that
     these persons hold the sole voting and dispositive power with respect to
     the common stock except as noted herein. For purposes of computing
     "beneficial ownership" and the percentage of outstanding common stock held
     by each person or group of persons named above as of the date of this
     annual report, any security which such person or group of persons has the
     right to acquire within sixty (60) days after such date is deemed to be
     outstanding for the purpose of computing beneficial ownership and the
     percentage ownership of such person or persons, but is not deemed to be
     outstanding for the purpose of computing the percentage ownership of any
     other person.

                                       24
<PAGE>

(3)  Represents (i) 43,561 shares of Common Stock and 30,000 options to purchase
     Common Stock directly owned, (ii) 67,395 shares of Common Stock owned by
     Roshan Katrak, Mr. Lakdawala's wife, (iii) 69,684 shares of Common Stock
     owned by Roshaness Inc., a company owned by Mr. Lakdawala, and (iv)
     1,492,879 owned by 3103-7195 Quebec Inc., a company owned by Mr.
     Lakdawala's spouse and children.

(4)  Represents (i) 67,395 shares of Common Stock and 30,000 options to purchase
     Common Stock directly owned, (ii) 43,561 shares of Common Stock owned by
     Ness Lakdawala, Ms. Katrak's husband, (iii) 69,684 shares of Common Stock
     owned by Roshaness Inc., a Company owned by Ness Lakdawala, and (iv)
     1,492,879 shares owned by 3103-7195 Quebec Inc., a company owned by Ms.
     Katrak and her children.

(5)  Includes 9,000 options to purchase Common Stock.

(6)  Represents 12,000 options to purchase Common Stock. Ralph Kittler is the
     son of Reinhold Kittler, a director.

(7)  Includes 8,000 options to purchase Common Stock. Mr. Lucas is obligated to
     return 57,000 of such shares to the Company, which will be allocated to
     other individuals at a later date.

(8)  Represents 5,100 shares of Common Stock and 4,000 options to purchase
     Common Stock directly owned and 2,000 owned by Silvia Pedicelli, Mr. Ness'
     wife.

(9)  Includes 32,000 options to purchase Common Stock.

(10) Includes 3,000 options to purchase Common Stock.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS


         We lease our St. Hubert, Quebec manufacturing facility from Roshan
Katrak, our Vice President of Human Relations and the wife of Ness Lakdawala,
our President, Chairman and CEO, for a monthly rent of $2,942 per month. We
believe that the lease was made on terms no less favorable than could be
obtained from unaffiliated third parties.

         We lease our Montreal, Quebec manufacturing facilities from Roshaness
Inc., a company owned by Ness Lakdawala, for a monthly rent of $3,024 per month.
We believe that the lease was made on terms no less favorable than could be
obtained from unaffiliated third parties.

         We lease our Grande Allee manufacturing facilities from Investiness
Inc., a company owned by Ness Lakdawala's spouse and children, for an aggregate
monthly lease payment of $14,175. We believe that the lease was made on terms no
less favorable than could be obtained from unaffiliated third parties.

         Immediately prior to the effective date of the Registration Statement
for our initial public offering (the "Offering"), we restructured our corporate
structure ("Restructuring"). In order to complete the Restructuring, (i) Dectron
Inc., which prior to the Restructuring owned a majority interest in Refplus,
acquired the minority interests in Refplus, which included both common stock and
preferred stock (and assumed Refplus' loan payables of approximately
Cdn$125,000) which is included in the Cdn$1,149,050 number mentioned below) in
exchange for 62,500 shares of Dectron's Common Stock and Cdn$102,503; (ii)
Dectron Inc. acquired all of the outstanding securities of Thermoplus, which
included both Common Stock and preferred stock, and assumed Thermoplus' parent
company's loan payables (approximately Cdn$497,000, which amount is included in
the Cdn$1,149,050 number mentioned below) in exchange for 194,621 shares of
Dectron's Common Stock and Cdn$423,738, and (iii) Dectron acquired all of the
issued and outstanding securities of Dectron Inc. in exchange for 1,492,879
shares of the Dectron's Common Stock. The shares of Dectron Inc. were owned by
159653 Canada, Inc. which was a holding company beneficially owned by Mr.
Lakdawala. The Refplus and Thermoplus' parent company loans payable represent
the repayment of loans made to such companies. In connection with the
Restructuring, we issued 1,750,000 shares of Common Stock and promissory notes
in the aggregate amount of Cdn$1,149,050. Of this amount, Cdn$557,050 (or
approximately U.S.$400,000) were repaid out of the proceeds of the Offering. Of
these amounts, an aggregate amount of 1,674,059 shares of Common Stock and
promissory notes in the aggregate amount of Cdn$592,000 were issued to Ness
Lakdawala, and his affiliates. The Cdn$592,000 was repaid out of Dectron's cash
flow, without interest, in 12 equal monthly installments which repayment
commenced three months after the Offering.

                                       25
<PAGE>

         Mr. Lakdawala and his affiliates received their 1,674,059 shares of
Dectron for contributing their interest in Dectron's subsidiaries. Specifically,
Mr. Lakdawala's affiliate received 1,492,879 shares in exchange for 100% of
159653 Canada Inc., which owned 100% of Dectron Inc. prior to the Restructuring;
156,808 shares for a portion of their shares of KeepKool which represented 86%
of KeepKool (KeepKool owned 94% of Thermoplus prior to the Restructuring); and
24,372 share for his shares of 3294242 Canada Inc. which represented 61% of
3294242 (3294242 owned 49.99% of Refplus, Inc. prior to the Restructuring).
Dectron Inc. owned 50.01% of Refplus Inc. prior to the Restructuring. The two
promissory notes totaling Cdn$592,000 were issued to Mr. Lakdawala and his
affiliates in exchange for Cdn$222,000 of debt owed to Mr. Lakdalawa by KeepKool
and Cdn$370,000 for a portion of his shares of KeepKool.

         The terms of the Restructuring were negotiated between Mr. Lakdawala
and the other owners of the minority interest in Refplus and Thermoplus. Mr.
Lakdawala and his affiliates held a majority interest in Thermoplus prior to the
Restructuring. Dectron owned a majority interest in Refplus prior to the
Restructuring and Mr. Lakdawala owned a majority of the 49.99% interest in
Refplus purchased by Dectron in the Restructuring. The value was arrived at
based on negotiations between Dectron and the sellers (other than Mr. Lakdawala
and his affiliates). Dectron did not have two independent disinterested
directors to ratify the transactions. There can be no assurance that such
transaction was on terms no less favorable than Dectron could have obtained from
other third parties, although management believes that they were as favorable.

         Between March 1999 and June 2000, we made loans of $152,441 to Mauro
Parissi, our Chief Financial Officer, $162,109 to Leena Lakdawala, our Executive
Vice President, and $188,405 to Dave Lucas, our Vice President. The
loans were used to finance purchase of the Dectron's stock and bore interest at
the Canadian prescribed interest rate of five percent (5%). As of April 30,
2002, the loan balances of Mr. Parissi, Ms. Lakdawala and Mr. Lucas were
$13,422, $162,109, and $161,305, respectively.

         All future material transactions, including any loans, between Dectron
and its officers, directors, principal stockholders or affiliates of any of them
have been and will be on terms no less favorable to Dectron than those that can
be obtained from unaffiliated third parties, and will be approved in advance by
a majority of the independent and disinterested directors who had access, at
Dectron's expense, to Dectron's or independent legal counsel.


                                       26
<PAGE>


ITEM 13.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<S>          <C>                                                                                    <C>
(a)          Financial Statements.
             Report of Independent Auditors...................................................................F - 1
             Consolidated Balance Sheets
                 for the years ended January 31, 2002 and 2001.......................................F - 2 to F - 3
             Consolidated Statements of Earnings
                 for the years ended January 31, 2002, 2001 and 2000..........................................F - 4
             Consolidated Statements of Cash Flows
                 for the years ended January 31, 2002, 2001 and 2000.................................F - 5 to F - 7
             Consolidated Statements of Stockholders' Equity
                 for the years ended January 31, 2002, 2001 and 2000..........................................F - 8
             Notes to Consolidated Financial Statements.............................................F - 9 to F - 22
</TABLE>

(b)          Reports on Form 8-K.

             None.

(c)          Exhibits.

             None.



                                       27
<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


                                 By:    /s/ Ness Lakdawala
                                       ------------------------------------
                                         Ness Lakdawala
                                         Chairman and Chief Executive Officer

                                 Dated: May 1, 2002

             Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.


<TABLE>
<S>                                         <C>                                                        <C>
 /s/ Ness Lakdawala
---------------------------------------     Chairman, President, Chief Executive                        May 1, 2002
Ness Lakdawala                              Officer

/s/  Reinhold Kittler
------------------------------------        Executive Vice President and Director                       May 1, 2002
Reinhold Kittler

 /s/ Roshan Katrak
-----------------------------------------   Vice President of Human Relations                           May 1, 2002
Roshan Katrak                               and Director

 /s/ Mauro Parissi
----------------------------------------    Chief Financial Officer, Secretary                         May 1, 2002
Mauro Parissi                               and Director

/s/ Michel Lecompte
------------------------------------        Vice President of Operations of Refplus                     May 1, 2002
Michel Lecompte

 /s/ Leena Lakdawala
----------------------------------------    Executive Vice President and Director                       May 1, 2002
Leena Lakdawala

</TABLE>



                                       28
<PAGE>


                           DECTRON INTERNATIONALE INC.
                        CONSOLIDATED FINANCIAL STATEMENTS
                             AS AT JANUARY 31, 2002




<PAGE>


                           DECTRON INTERNATIONALE INC.
                        CONSOLIDATED FINANCIAL STATEMENTS
                             AS AT JANUARY 31, 2002



                                TABLE OF CONTENTS


Report of Independent Auditors                                           F - 1

Consolidated Balance Sheets                                         F - 2 - 3

Consolidated Statements of Earnings                                     F - 4

Consolidated Statements of Cash Flows                               F - 5 - 7

Consolidated Statements of Stockholders' Equity                         F - 8

Notes to Consolidated Financial Statements                         F - 9 - 22


<PAGE>



Schwartz Levitsky Feldman  SRL
COMPTABLES AGREES
CHARTERED ACCOUNTANTS
MONTREAL, TORONTO, OTTAWA






REPORT OF INDEPENDENT AUDITORS



To the Stockholders of
Dectron Internationale Inc.


We have audited the consolidated balance sheets of Dectron Internationale Inc.
as at January 31, 2002 and 2001 and the related consolidated statements of
earnings, cash flows and changes in stockholders' equity for each of the years
ended January 31, 2002, 2001 and 2000. These consolidated financial statements
are the responsibility of Dectron Internationale's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dectron
Internationale Inc. as at January 31, 2002 and 2001 and the results of its
operations and its cash flows for each of the years ended January 31, 2002, 2001
and 2000, in conformity with generally accepted accounting principles in the
United States of America.

Since the accompanying financial statements have not been prepared and audited
in accordance with generally accepted accounting principles and generally
accepted auditing standards in Canada, they may not satisfy the reporting
requirements of Canadian statutes and regulations.







Montreal, Quebec
April 8, 2002                                              Chartered Accountants


             1980, rue Sherbrooke Ouest, 10e etage
             Montreal (Quebec) H3h 1E8
             Tel: 514 937 6392
             Fax: 514 933 9710



                                      F-1
<PAGE>



DECTRON INTERNATIONALE INC.
Consolidated Balance Sheets
As at January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------


                                                      2002           2001
                                                   -----------    -----------
 Assets

 Current

      Cash                                         $    86,727    $   145,448
      Accounts receivable (note 3)                   8,056,304      9,546,216
      Income taxes receivable                           58,313        352,323
      Inventory (note 4)                             9,186,114     10,699,326
      Prepaid expenses and sundry assets               555,327        766,318
      Deferred income taxes                             46,546          9,465
                                                   -----------    -----------

                                                    17,989,331     21,519,096

 Loans receivable (note 5)                             517,164        388,261

 Property, plant and equipment (note 6)              9,804,587     11,074,016

 Intangibles (note 7)                                  139,048        115,610

 Goodwill (note 8)                                   1,298,942      1,584,997

 Deferred income taxes                                 811,566        478,005
                                                   -----------    -----------

                                                   $30,560,638    $35,159,985
                                                   ===========    ===========



The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-2
<PAGE>



DECTRON INTERNATIONALE INC.
Consolidated Balance Sheets
As at January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------


                                                        2002             2001
                                                    ------------     -----------
Liabilities

 Current

   Bank loans (note 9)                                $ 8,326,166   $ 8,333,669
   Accounts payable and accrued expenses (note 10)      4,341,533     7,172,312
   Current portion of long-term debt (note 11)          1,336,058     1,080,412
   Note payable                                                 -        83,394
                                                       ----------   -----------

                                                       14,003,757    16,669,787

 Long-term debt (note 11)                               5,170,364     6,722,601

 Due to director                                                -        14,020

 Loan payable (note 12)                                   192,355       198,723

 Deferred revenue                                       1,343,816     1,208,909
                                                      -----------   -----------

                                                       20,710,292    24,814,040
                                                      -----------   -----------

 Stockholders' equity

 Capital stock (note 13)                                6,752,933     6,718,510

 Treasury stock                                           (88,780)      (88,780)

 Accumulated other comprehensive loss                    (591,822)      (14,735)

 Retained earnings                                      3,778,015     3,730,950
                                                      -----------   -----------

                                                        9,850,346    10,345,945
                                                      -----------   -----------

                                                      $30,560,638   $35,159,985
                                                      ===========   ===========


The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-3
<PAGE>



DECTRON INTERNATIONALE INC.
Consolidated Statements of Earnings
For the Years Ending January 31
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                  2002                  2001                  2000
                                                            -----------------     -----------------     -----------------
<S>                                                         <C>                   <C>                   <C>
 Sales                                                      $    33,285,958       $    35,061,903       $    31,402,954

      Cost of sales                                              21,938,157            22,697,530            20,168,656
                                                            -----------------     -----------------     -----------------

 Gross profit                                                    11,347,801            12,364,373            11,234,298
                                                            -----------------     -----------------     -----------------

 Operating expenses
      Selling                                                     5,369,842             5,318,464             5,270,656
      General and administrative                                  3,166,401             3,096,003             2,065,155
      Depreciation and amortization                               1,568,065             1,521,158             1,187,662
      Interest expense                                            1,369,594             1,458,861               674,287
                                                            -----------------     -----------------     -----------------

                                                                 11,473,902            11,394,486             9,197,760
                                                            -----------------     -----------------     -----------------

 Earnings (loss) before income taxes                               (126,101)              969,887             2,036,538

      Income taxes (recovered) (note 14)                           (173,166)              112,461               909,775
                                                            -----------------     -----------------     -----------------

 Net earnings                                               $        47,065       $       857,426       $     1,126,763
                                                            =================     =================     =================

 Net earnings per common share, basic and diluted                      0.02                  0.31                  0.40
                                                            =================     =================     =================

 Weighted average number of common shares outstanding             2,795,000             2,795,000             2,795,000
                                                            =================     =================     =================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-4
<PAGE>


DECTRON INTERNATIONALE INC.
Consolidated Statements of Cash Flows
For the Years Ending January 31
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                      2002                  2001                 2000
                                                                ------------------    ------------------    ----------------
<S>                                                             <C>                   <C>                   <C>
  Operating activities:

  Net earnings                                                  $        47,065       $       857,426       $    1,126,763

  Adjustments to reconcile net earnings to net cash used
    in operating activities:
       Depreciation and amortization                                  1,568,065             1,521,158            1,187,662
       Decrease (increase) in accounts receivable                     1,489,912            (1,919,376)          (2,007,191)
       Decrease (increase) in income taxes receivable                   294,010              (352,323)                   -
       Decrease (increase) in inventory                               1,513,212            (2,529,719)          (3,031,453)
       Decrease (increase) in prepaid expenses and
         sundry assets                                                  210,991               296,655             (433,713)
       Increase in deferred income taxes                               (370,642)             (294,619)            (137,125)
       Increase (decrease) in accounts payable and accrued
       expenses                                                      (2,830,779)            2,075,335            1,283,078
       Increase (decrease) in income taxes payable                            -              (140,361)             211,883
       Increase in deferred revenue                                     134,907               248,672              193,666
                                                                ------------------    ------------------    ----------------

  Net cash provided by (used in) operating activities                 2,056,741              (237,152)          (1,606,430)
                                                                ------------------    ------------------    ----------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-5
<PAGE>




DECTRON INTERNATIONALE INC.
Consolidated Statements of Cash Flows
For the Years Ending January 31
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   2002                 2001                 2000
                                                              ----------------     ----------------     ----------------
<S>                                                           <C>                  <C>                  <C>
  Investing activities:

       Acquisition of property, plant and equipment                 (670,224)          (4,844,995)          (3,323,520)
       Government grant received                                           -              200,000                    -
       Deposit on building                                                 -            1,000,000           (1,000,000)
       Acquisition of intangibles                                    (47,250)             (27,335)            (101,764)
       Acquisition of goodwill                                             -              (91,134)                   -
                                                              ----------------     ----------------     ----------------

  Net cash used in investing activities                             (717,474)          (3,763,464)          (4,425,284)
                                                              ----------------     ----------------     ----------------

  Financing activities

       Advances to loans receivable                                 (128,903)            (208,322)             (56,562)
       Advances to corporate shareholders                                  -                    -               (1,113)
       Advances from (repayments of) bank loans                       (7,503)           2,717,502            2,669,311
       Note payable                                                  (83,394)              83,394             (533,199)
       Other loan payable                                                  -                    -              (64,553)
       Advances from (repayments of) long-term debt               (1,296,591)           1,882,102            3,948,516
       Advances from (repayments of) due to directors                (14,020)             (37,885)                 266
       Advances from (repayments of) loans payable                    (6,368)             (76,334)              16,005
       Purchase of treasury stock                                          -                    -              (88,780)
       Repayments of (advances for) share purchase plan
       receivable                                                     34,423             (131,099)            (499,946)
                                                              ----------------     ----------------     ----------------

  Net cash (used in) provided by financing activities             (1,502,356)           4,229,358            5,389,945
                                                              ----------------     ----------------     ----------------

  Effect of foreign currency exchange rate on cash
  and cash equivalents                                               104,368             (303,856)             356,788
                                                              ----------------     ----------------     ----------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-6
<PAGE>



DECTRON INTERNATIONALE INC.
Consolidated Statements of Cash Flows
For the Years Ending January 31
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                  2002                 2001                 2000
                                                            -----------------    -----------------    -----------------
<S>                                                         <C>                  <C>                  <C>
 Net decrease in cash and cash equivalents                          (58,721)             (75,114)            (284,981)

      Cash and cash equivalents, beginning of year                  145,448              220,562              505,543
                                                            -----------------    -----------------    -----------------

 Cash and cash equivalents, end of year                     $        86,727      $       145,448      $       220,562
                                                            =================    =================    =================

 Supplemental disclosure of cash flow information

      Interest paid                                         $     1,166,984      $     1,299,423      $       522,558
                                                            =================    =================    =================

      Income taxes paid                                     $       705,811      $       959,492      $       706,339
                                                            =================    =================    =================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-7
<PAGE>


DECTRON INTERNATIONALE INC.
Consolidated Statements of Stockholders' Equity
For the Years Ending January 31
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                        Cumulative           Other
                                                                         Retained        Comprehensive        Treasury
                                   Number              Amount            Earnings            Income             Stock
                                ----------------   ---------------   -----------------  -----------------  ----------------
<S>                             <C>                <C>               <C>                <C>                <C>
 Balance January 31, 1999            2,795,000     $    6,867,529    $    1,746,761     $      (67,667)    $      -
                                ================   ===============   =================  =================  ================

 Purchase of 20,000
 common shares                          -          $      -          $       -          $       -          $     (88,780)
 Share purchase plan
 receivable                             -               (499,946)            -                  -                 -
 Deferred tax benefit                   -                482,026             -                  -                 -
 Foreign currency translation           -                 -                  -                 356,788            -
 Net income for the year                -                 -               1,126,763              -                -
                                ----------------   ---------------   -----------------  -----------------  ----------------

 Balance January 31, 2000            2,795,000     $   6,849,609     $    2,873,524      $     289,121     $     (88,780)
                                ================   ===============   =================  =================  ================

 Share purchase plan
 receivable                            -           $    (131,099)    $       -          $       -          $    -
 Foreign currency translation          -                  -                  -                (303,856)         -
 Net income for the year               -                  -                 857,426             -               -
                                ----------------   ---------------   -----------------  -----------------  ----------------

 Balance January 31, 2001            2,795,000     $   6,718,510     $    3,730,950     $      (14,735)    $     (88,780)
                                ================   ===============   =================  =================  ================

 Share purchase plan
 receivable                            -           $      34,423     $       -          $       -          $     -
 Foreign currency translation          -                 -                   -                (577,087)          -
 Net income for the year               -                  -                  47,065            -                  -
                                ----------------   ---------------   -----------------  -----------------  ----------------

 Balance January 31, 2002            2,795,000     $    6,752,933    $    3,778,015     $     (591,822)    $     (88,780)
                                ================   ===============   =================  =================  ================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-8
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------


1.    Summary of significant accounting policies

      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. and of its
      wholly-owned subsidiaries, Refplus Inc., Thermoplus Air Inc., Fiber Mobile
      Ltd., Dectron U.S.A. Inc., IPAC 2000 Inc. and Le Groupe Prodapec (2000)
      Inc.

      Circul-aire Group is comprised of 9048-3140 Quebec Inc. and Cascade
      Technologies Inc., and of its wholly-owned subsidiaries, PM Wright Ltd.,
      Purafil Canada Inc. and 122248 Canada Inc.

      All inter-company profits, transactions and account balances have been
      eliminated.

      Principal Activities

      The company 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 world wide. The activities of Dectron Internationale Inc.,
      Cascade Technologies Inc., 9048-3140 Quebec Inc. are immaterial in the
      aggregate, as their only activity is to hold the investments in the
      operating companies.

      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.

      Revenue Recognition

      Contract revenue is accounted for under the percentage of completion
      method prorated on units produced. When a terminal loss on a contract can
      be reasonably estimated, the total estimated amount of the loss is charged
      to income for the year.

      Inventory

      Inventory of raw materials is valued at the lower of cost and replacement
      cost and inventory of work-in-process and finished goods at the lower of
      cost and net realizable value. Cost is determined on the first-in,
      first-out basis.



                                      F-9
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------


1.    Summary of significant accounting policies (continued)

      Property, Plant and Equipment

      Property, plant and equipment are recorded at cost and are depreciated or
      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 equipment             10%                    Straight line or 20% declining balance
     Furniture and fixtures              15 or 20%              Straight line or 20% declining balance
     Computer equipment                  15 or 30%              Straight line or 20% declining balance
     Rolling stock                       30%                    Straight line or 20% declining balance
     Leasehold improvements                                     Straight line over term of the lease
</TABLE>

      Depreciation and amortization for assets acquired during the year are
      recorded at one-half of the indicated rates.

      Intangibles

      Intangibles are accounted for at cost. Amortization is based on the
      estimated useful life using the straight-line method over the following
      term:

      Patents                                               15   years
      Trademarks                                            15   years
      Rights                                                5    years

      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.

      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.



                                      F-10
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
-------------------------------------------------------------------------------

1.    Summary of significant accounting policies (continued)

      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.

      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.

      Earnings Per Share

      The company has adopted FAS No. 128, "Earnings per Share" which requires
      disclosure on the financial statements of "basic" and "diluted" earnings
      per share. Basic earnings per share are computed by dividing net income by
      the weighted average number of common shares outstanding for the year.
      Diluted earnings per share are computed by dividing net income by the
      weighted average number of common shares outstanding plus common stock
      equivalents (if dilutive) related to warrants for each year.

      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 affect 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 those estimates.



                                      F-11
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

1.    Summary of significant accounting policies (continued)

      Long-lived Assets

      The company adopted the provisions of FAS No. 121, Accounting for the
      Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
      of. FAS No. 121 requires that long-lived assets held and used by an entity
      be reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable.
      Management used its best estimate of the undiscounted cash flows to
      evaluate the carrying amount and have determined that no impairment has
      occurred.

2.    Comprehensive income

      The company has adopted FAS No. 130 "Reporting Comprehensive Income" which
      requires new standards for reporting and display of comprehensive income
      and its components in the financial statements. However, it does not
      affect net income or total stockholders' equity. The components of
      comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                                   2002                 2001                 2000
                                                             -----------------    -----------------     ----------------
<S>                                                          <C>                  <C>                   <C>
     Net income                                              $        47,065      $       857,426       $     1,126,763

     Other comprehensive income (loss)

          Foreign currency translation                              (577,087)            (303,856)              356,788
                                                             -----------------    -----------------     ----------------

     Comprehensive income (loss)                             $      (530,022)     $       553,570       $     1,483,551
                                                             =================    =================     ================
</TABLE>


3.    Accounts receivable

<TABLE>
<CAPTION>
                                                                                        2002                 2001
                                                                                  -----------------     ----------------
<S>                                                                               <C>                   <C>
     Trade                                                                        $     8,455,426       $     9,877,727
     Less:  Allowance for doubtful accounts                                               399,122               331,511
                                                                                  -----------------     ----------------

     Net                                                                          $     8,056,304       $     9,546,216
                                                                                  =================     ================
</TABLE>


4.    Inventory

<TABLE>
<CAPTION>

                                                                                        2002                 2001
                                                                                   ----------------    -----------------
<S>                                                                                <C>                 <C>
     Raw materials                                                                 $     5,688,706     $     6,048,814
     Work-in-process                                                                     1,269,579           1,861,859
     Finished goods                                                                      2,227,829           2,788,653
                                                                                   ----------------    -----------------

                                                                                   $     9,186,114     $    10,699,326
                                                                                   ================    =================
</TABLE>


                                      F-12
<PAGE>


DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

5.        Loans receivable

<TABLE>
<CAPTION>
                                                                                        2002                 2001
                                                                                  -----------------     ----------------
<S>                                                                               <C>                   <C>
     Private companies                                                            $       487,290       $       326,628
     Corporate shareholder                                                                 29,874                27,409
     Other                                                                                      -                34,224
                                                                                  -----------------     ----------------

                                                                                  $       517,164       $       388,261
                                                                                  =================     ================
</TABLE>


6.    Property, plant and equipment

<TABLE>
<CAPTION>
                                                                                        2002                 2001
                                                                                  -----------------    -----------------
<S>                                                                               <C>                  <C>
     Land                                                                         $       453,173      $       479,900
     Building                                                                           4,735,592            5,005,583
     Machinery and equipment                                                            8,879,849            9,136,844
     Furniture and fixtures                                                               715,182              676,856
     Computer equipment                                                                 1,656,999            1,589,485
     Rolling stock                                                                        140,319              163,336
     Leasehold improvements                                                               775,256              635,791
                                                                                  -----------------    -----------------

     Cost                                                                              17,356,370           17,687,795
                                                                                  -----------------    -----------------

     Less: accumulated depreciation and amortization

     Building                                                                             640,652              508,312
     Machinery and equipment                                                            4,643,758            3,996,861
     Furniture and fixtures                                                               536,998              498,346
     Computer equipment                                                                 1,219,883            1,147,613
     Rolling stock                                                                         89,332               79,252
     Leasehold improvements                                                               421,160              383,395
                                                                                  -----------------    -----------------

                                                                                        7,551,783            6,613,779
                                                                                  -----------------    -----------------

     Net                                                                          $     9,804,587      $    11,074,016
                                                                                  =================    =================

     Capital leases included above                                                $       548,540      $       869,930
                                                                                  =================    =================
</TABLE>

      Depreciation and amortization of property, plant and equipment for fiscal
      year 2002 amounted to $1,348,707 ($1,302,741 in 2001).


                                      F-13
<PAGE>


DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

7.    Intangibles


<TABLE>
<CAPTION>
                                                                                      2002                   2001
                                                                                ------------------    -------------------
<S>                                                                             <C>                   <C>
     Patents, trademarks and rights costs                                       $       166,101       $       125,860
     Less:  Accumulated amortization                                                     27,053                10,250
                                                                                ------------------    -------------------

     Net                                                                        $       139,048       $       115,610
                                                                                ==================    ===================
</TABLE>

      Amortization of intangibles for fiscal year 2002 amounted to $17,713
      ($7,704 in 2001).

8.        Goodwill

<TABLE>
<CAPTION>

                                                                                        2002                 2001
                                                                                  -----------------     ----------------
<S>                                                                               <C>                   <C>
     Cost                                                                         $     1,977,830       $     2,094,475
     Less: Accumulated amortization                                                       678,888               509,478
                                                                                  -----------------     ----------------

     Net                                                                          $     1,298,942       $     1,584,997
                                                                                  =================     ================
</TABLE>

      Amortization of goodwill for fiscal year 2002 amounted to $201,645
      ($210,713 in 2001)

9.    Bank loans

      The company has an available line of credit of $10,400,000 bearing
      interest at the Canadian prime lending rate plus 0.25% per annum of which
      $2,100,000 remained unused as at January 31, 2002 and it is renegotiated
      annually.

      Bank loans are secured by a first ranking moveable hypothec on accounts
      receivable, inventory and a first ranking universal hypothec in the amount
      of $31,500,000 on the universality of the borrower's property, movable and
      immovable, present and future, corporeal and incorporeal. The company also
      provided a solidary guarantee in the amount of $6,300,000 and a rider
      designating the Bank as loss payee of the proceeds of all-risk insurance
      on the property charged as security.

      The company finances its operations mainly through the use of Banker's
      Acceptances.

      The average cost of financing for fiscal year 2002 is 8,84% (10.54% in
      2001).


                                      F-14
<PAGE>


DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

10.   Accounts payable and accrued expenses

<TABLE>
<CAPTION>

                                                                                       2002                 2001
                                                                                 -----------------    -----------------
<S>                                                                              <C>                  <C>
     Trade payables                                                              $     2,760,644      $     5,366,575
     Accrued expenses                                                                  1,580,889            1,805,737
                                                                                 -----------------    -----------------

                                                                                 $     4,341,533      $     7,172,312
                                                                                 =================    =================
</TABLE>

11.   Long-term debt

<TABLE>
<CAPTION>
                                                                                       2002                 2001
                                                                                 -----------------    ------------------
<S>                                                                              <C>                  <C>
     a)    Government loans, without guarantee nor interest, repayable 15
           years after their date of receipt, the first portion of $28,980
           is repayable in August 2002 and the second portion of $28,980 is
           repayable in July 2004.                                               $        57,960     $         61,378

     b)    Immigration loans secured by a first ranking universal hypothec
           bearing interest at variable rates from 5.21% to 5.59% per annum, due
           on various dates between November 2002 and May 2004. The loans are
           net of sinking funds since all amounts paid into them
           must be used to repay the loans.                                              789,970              999,564

     c)    Bank term loans bearing interest at variable rates from prime plus
           0.75% and plus 1% and from 7% to 7.99% per annum, due on
           various dates from April 2002 to June 2014.                                   466,487              616,509

     d)    Bank term loans bearing interest at variable rates from the bank's
           American prime rate plus 0.75% and plus 1% per annum, due
           on various dates from March to October 2005.                                3,995,645            4,486,467

     e)    Mezzanine loan bearing interest at the bank's American prime
           rate, due on February 2003.                                                   670,000              868,000

     f)    Obligations under capital leases for machinery and equipment and
           rolling stock subject to monthly repayments including imputed
           interest at variable rates between 7.24% to 8.48% per annum, up
           to various dates between April 2002 and September 2005.                       526,360              698,622
                                                                                 -----------------    ------------------

     Balance carried forward                                                           6,506,422            7,730,540
                                                                                 -----------------    ------------------
</TABLE>


                                      F-15
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

11.   Long-term debt (Continued)


<TABLE>
<CAPTION>
                                                                                       2002                 2001
                                                                                 -----------------    ------------------
<S>                                                                              <C>                  <C>
     Balance brought forward                                                            6,506,422            7,730,540

     g)    Loans repaid during year                                                             -               72,473
                                                                                 -----------------    ------------------

                                                                                        6,506,422            7,803,013

           Current portion                                                              1,336,058            1,080,412
                                                                                 -----------------    ------------------

                                                                                 $      5,170,364     $      6,722,601
                                                                                 =================    ==================
</TABLE>

      Future payment obligations are as follows:

<TABLE>
<CAPTION>
                                                                                Future minimum
                                                                                lease payments
                                                        Future principal         under capital
                                                       payment obligations          leases                 Total
                                                       --------------------   --------------------   ------------------
<S>                                                    <C>                    <C>                    <C>
     2003                                              $       1,209,460      $         164,308      $     1,373,768
     2004                                                      1,196,296                164,302            1,360,598
     2005                                                        983,509                164,297            1,147,806
     2006                                                      1,595,997                 96,896            1,692,893
     2007 and thereafter                                       1,005,950                  8,404            1,014,354
                                                       --------------------   --------------------   ------------------

                                                               5,991,212                598,207            6,589,419

     Less:  Imputed interest                                           -                (82,997)             (82,997)
                                                       --------------------   --------------------   ------------------

                                                       $       5,991,212      $         515,210      $     6,506,422
                                                       ====================   ====================   ==================
</TABLE>

12.   Loan payable

      This loan payable to private companies bears interest at prime plus 1%,
      due on April 15, 2004.



                                      F-16
<PAGE>


DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

13.   Capital stock

      Authorized

            An unlimited number of preferred shares, non-cumulative, voting, no
            par value

            An unlimited number of common shares, voting, no par value

      Issued

<TABLE>
<CAPTION>

                                                          2002                 2001
                                                     ----------------     ----------------
<S>                                                  <C>                  <C>
               2,795,000 Common shares               $     6,752,933      $     6,718,510
                                                     ================     ================
</TABLE>

      Purchase Warrants

      During the fiscal year 1999, Purchase Warrants ("Warrants") were issued
      pursuant to a Warrant Agreement between the company and J.P. Turner &
      Company, L.L.C. and Klein Maus and Shire Incorporated. Each Warrant
      entitles its holders to purchase, during the four year period commencing
      on October 5, 1999, one share of common stock at an exercise price of
      $9.00 per share, subject to adjustment in accordance with the
      anti-dilution and other provision referred to below.

      The Warrants may be redeemed by the company at any time commencing one
      year from October 5, 1999 (or earlier with the consent of the
      representatives) and prior to their expiration, at a redemption price of
      $0.125 per Warrant, on not less than 30 days prior written notice to the
      holders of such Warrants, provided that the closing bid price of the
      common stock, if traded on the Nasdaq SmallCap Market, or the last sale
      price of the common stock, if listed on the Nasdaq National Market or on a
      national exchange, is at least 133% ($12.00 per share, subject to
      adjustment) of the exercise price of the Warrants for a period of 30
      consecutive trading days ending on the third day prior to the date the
      notice of redemption is given. Holders of Warrants shall have exercise
      rights until the close of the business day preceding the date fixed for
      redemption.

      The exercise price and the number of shares of common stock purchasable
      upon the exercise of the Warrants are subject to adjustment upon the
      occurrence of certain events, including stock dividends, stock splits,
      combinations or classification of the common stock. The Warrants do not
      confer upon holders any voting or any other rights of shareholders of the
      company.

      No Warrant will be exercisable unless at the time of exercise the company
      has filed with the Commission a current prospectus covering the issuance
      of common stock issuable upon the exercise of the Warrant and the issuance
      of shares has been registered or qualified or is deemed to be exempt from
      registration or qualification under the securities laws of the state of
      residence of the holder of the Warrant. The company has undertaken to use
      its best efforts to maintain a current prospectus relating to the issuance
      of shares of common stock upon the exercise of the Warrants until the
      expiration of the Warrants, subject to the terms of the Warrant Agreement.
      While it is the company's intention to maintain a current prospectus,
      there is no assurance that it will be able to do so.



                                      F-17
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

13.   Capital stock (continued)

      Employee Stock Option Plan

      In 1999, the Company adopted a Stock Option Plan (the "1999 Plan")
      pursuant to which 650,000 shares of Common Stock are reserved for
      issuance, 334,000 options are currently issued and outstanding.

      On September 2, 1999, the Board granted options under the Stock Option
      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% of the total options per
      year for the following four years. Each of the options will be fully
      exercisable on November 4, 2003, and expire on November 4, 2004. The
      exercise price of the option is $3.00.

      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, 121,000 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 will be fully
      exercisable on January 4, 2006 and expire on January 4, 2007. The exercise
      price of the option is $4.20.

      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 1999 Plan is effective for a period of five years expiring in 2004 and
      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 1999 Plan may be exercisable for up
      to five years, and ten years for the 2001 Plan, 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 three
      months to exercise, except for termination for cause, which results in
      immediate termination of the option.

      Option under the Plans must be issued within five years from the effective
      date of the 1999 Plan and ten years from the effective date of the 2001
      Plan.



                                      F-18
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

13.   Capital stock (continued)

      Employee Stock Option Plan (continued)

      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.

      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 shareholders' equity has
      been increased by $34,423 at January 31, 2002 (reduced by $131,099 -
      2001), to reflect the loans due from certain employees and officers which
      relate to the purchase of common shares of the company.


14.   Income taxes

<TABLE>
<CAPTION>
                                                                                        2002                 2001
                                                                                  -----------------    -----------------
<S>                                                                               <C>                  <C>
     a)   Current                                                                 $       208,264      $       488,343
          Deferred (recovered)                                                           (381,430)            (375,882)
                                                                                  -----------------    -----------------

                                                                                  $      (173,166)     $       112,461
                                                                                  =================    =================

     b)   Income taxes at Canadian statutory rates:                               $       (39,294)     $       300,864

          Increase (decrease) resulting from:
          Large corporations                                                               12,838               10,452
          Manufacturing and processing deduction                                          (70,459)            (132,375)
          Non-deductible expenses                                                          44,102               31,113
          Temporary differences                                                          (642,097)            (166,255)
          Application of losses carried forward                                           (64,921)            (302,094)
          Difference between Canadian statutory rates and
          those applicable to foreign subsidiary                                          437,329              200,544
          Adjustment for prior year's taxes                                               126,124               65,112
          Other                                                                            23,212              105,100
                                                                                  -----------------    -----------------

          Effective income taxes                                                  $      (173,166)     $       112,461
                                                                                  =================    =================
</TABLE>


                                      F-19
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------

14.   Income taxes (continued)

      c)  Deferred income taxes represent the tax charges derived from temporary
          differences between amortization of property, plant and equipment and
          recognition of deferred revenue, and the actual amounts deducted from
          or added to the taxable income.

      d)  The company has operating losses of $510,000 which can be used to
          reduce future taxable income. The potential tax benefits of $64,000
          relating to the losses have been recognized in the company's accounts.
          The deductibility of these losses expires in 2007.

      e)  The company has recorded investment tax credits of $120,400 which are
          deductible from income taxes payable in future years.

15.   Commitments

      a)  The company is committed to payments under operating leases for its
          premises totaling $2,679,745. Annual payments for the next five years
          are as follows:

          2003                                            $        604,654
          2004                                                     568,571
          2005                                                     567,988
          2006                                                     464,397
          2007                                                     474,135
                                                          -----------------

                                                          $      2,679,745
                                                          =================

      b)  The company is committed to make monthly payments of $11,855 into
          sinking funds which are given as security against the immigration
          loans. The annual payments for the next three years are as follows:

          2003                                            $       142,254
          2004                                                     84,881
          2005                                                      9,828
                                                         -----------------

                                                         $       236,963
                                                         =================

      c)    As at January 31, 2002 the company had outstanding letters of credit
            totaling $100,800.

            These letters of credit were incurred in the normal course of
            business.



                                      F-20
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------


16.       Segmented information

<TABLE>
<CAPTION>
                                                                   2002                 2001                 2000
                                                             -----------------    -----------------    -----------------
<S>                                                          <C>                  <C>                  <C>

     a)   The breakdown of sales by geographic  area is as
          follows:

          Canada                                             $     7,570,037      $     9,310,780      $    10,615,226
          United States of America                                23,456,911           23,449,133           16,387,614
          International                                            2,259,010            2,301,990            4,400,114
                                                             -----------------    -----------------    -----------------

                                                             $    33,285,958      $    35,061,903      $    31,402,954
                                                             =================    =================    =================

     b)   The   breakdown   of   identifiable   assets  by
          geographic area is as follows:

          Canada                                             $     21,435,449     $     26,337,494     $     23,217,699
          United States                                             9,125,189            8,822,491            4,767,390
                                                             -----------------    -----------------    -----------------

                                                             $     30,560,638     $     35,159,985          $27,985,089
                                                             =================    =================    =================
</TABLE>

17.   Financial instruments and credit risk

      Fair Value of Financial Instruments

      The fair value of cash, accounts receivable and accounts payable
      approximately correspond to their book value given their short-term
      maturity. The carrying amount of long-term debt approximates fair value
      because interest rates are close to market value.

      The company has borrowed $1,323,000 in order to finance capital
      acquisitions (see note 11-b). Concurrently with these borrowings the
      company acquired an additional $1,512,000 of financing, for which it
      issued commercial paper of $1,512,000 with similar maturity and terms, as
      collateral. Since this commercial paper fully satisfies the required
      principal repayments of the additional financing, they have been offset
      and neither the asset nor the liability appears on the company's balance
      sheet.

      Credit Risk

      The company is exposed to credit risk on the accounts receivable from its
      customers. In order to reduce its credit risk, the company has adopted
      credit policies which include the analysis of the financial position of
      its customers and the regular review of their credit limits. In some
      cases, the company may require bank letters of credit.



                                      F-21
<PAGE>



DECTRON INTERNATIONALE INC.
Notes to Consolidated Financial Statements
January 31, 2002 and January 31, 2001
(Amounts Expressed in United States Dollars)
--------------------------------------------------------------------------------



18.   Selected quarterly financial data (unaudited)

<TABLE>
<CAPTION>

                                                First          Second          Third          Fourth
                   2002                         Quarter        Quarter        Quarter         Quarter           Total
                                          --------------------------------------------------------------------------------
<S>                                       <C>               <C>            <C>             <C>              <C>
     Sales                                $     9,639,831   $  8,693,307   $   9,965,921   $   4,986,899    $  33,285,958
     Gross Profit                               3,361,825      3,178,350       3,599,576       1,208,050       11,347,801
     Operating earnings                           886,766        846,399         953,196      (1,442,868)       1,243,493
     Net earnings (loss)                          408,761        389,216         528,123      (1,279,035)          47,065
     Earnings (loss) per common share                0.15           0.14            0.19           (0.46)            0.02
     Average  number of common  shares
     outstanding                                2,795,000      2,795,000       2,795,000       2,795,000       2,795,000


<CAPTION>

                                                First          Second          Third          Fourth
                   2001                         Quarter        Quarter        Quarter         Quarter           Total
                                          --------------------------------------------------------------------------------
<S>                                       <C>               <C>            <C>             <C>              <C>
     Sales                                $     8,626,887   $ 10,595,294   $   9,407,507   $   6,432,215    $  35,061,903
     Gross Profit                               2,890,677      3,167,551       3,918,231       2,387,914       12,364,373
     Operating earnings                           646,819        886,897         921,271         (26,239)       2,428,748
     Net earnings (loss)                          245,902        288,973         394,303         (71,752)         857,426
     Earnings (loss) per common shares               0.09           0.10            0.14           (0.02)            0.31
     Average  number of common  shares
     outstanding                                2,795,000      2,795,000       2,795,000       2,795,000        2,795,000

</TABLE>


19.   Comparative figures

      Certain figures in the 2001 and 2000 financial statements have been
      reclassified to conform with the basis of presentation used in 2002.

                                      F-22