VENTURIAN CORP, 10-K405, 2000-03-15

VENTURIAN CORP
10-K405, 2000-03-15
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended December 31, 1999

OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Commission file number

0-12117
-------

VENTURIAN CORP.
---------------
(Exact name of registrant as specified in its charter)

Minnesota 41-1460782
--------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

11111 Excelsior Boulevard, Hopkins, MN 55343
- ---------------------------------------- -----
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code 612-931-2500
------------

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
-------------------
NONE

Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Common stock, $1.00 par value

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-K 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-K or any amendment to this
Form 10-K. _X_

The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 6, 2000 was $4,719,000.

The number of shares outstanding of each of the registrant's classes of common
stock, as of March 6, 2000:

Class Outstanding at March 6, 2000
----- ----------------------------
Common stock, $1.00 par value 1,317,589

Documents Incorporated by Reference
-----------------------------------
1999 Annual Report to Shareholders - Part I and Part II
Proxy Statement--Part III

<PAGE>

Venturian Corp. and Subsidiaries

FORM 10-K

TABLE OF CONTENTS

For the year ended December 31, 1999

Description Page
----------- ----

Part I
- ------
Item 1.-Business 3

Item 2.-Properties 9

Item 3.-Legal Proceedings 9

Item 4.-Submission of Matters to a Vote of Security Holders 9

Part II
- -------
Item 5.-Market for Registrant's Common Equity
and Related Stockholder Matters 10

Item 6.-Selected Financial Data 10

Item 7.-Management's Discussion and Analysis of Financial
Condition and Results of Operations 10

Item 7A. Quantitative and Qualitative Disclosures About Market
Risk 10

Item 8.-Financial Statements and Supplementary Data 11

Item 9.-Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 11

Part III
- --------
Item 10.-Directors and Executive Officers of the Registrant 12

Item 11.-Executive Compensation 12

Item 12.-Security Ownership of Certain
Beneficial Owners and Management 12

Item 13.-Certain Relationships and Related Transactions 12

Part IV
- -------
Item 14.-Exhibits, Financial Statement Schedules
and Reports on Form 8-K 12

<PAGE>

Part I

Forward-looking statements contained throughout this Annual Report
on Form 10-K are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. There are certain important factors
that could cause results to differ materially from those anticipated by the
statements made herein, certain of which are set forth. Investors are cautioned
that all forward-looking statements involve risks and uncertainty.

Item 1. Business

Venturian Corp., a Minnesota corporation (the "Company"), was incorporated in
September 1983 as a wholly owned subsidiary of Napco Industries, Inc. Effective
as of the close of business on April 30, 1984, Napco Industries, Inc.
transferred to the Company all of the assets associated with the international
marketing and the U.S. government business which had been conducted by Napco
Industries, Inc. for more than thirty years. As of May 1, 1984, the Company
commenced the active operation of that business under the name of Napco
International Inc.

In June 1987, the Company changed its name to Venturian Corp., and
formed a subsidiary, Napco International Inc., through which the Company
conducts its international marketing and U.S. government business. In October
1992, the Company acquired the capital stock of PC Express, Inc. In July 1995,
the Company discontinued operations of PC Express due to continued losses. In
January 1993, the Company commenced operations of Venturian Software, Inc.
(Venturian Software). In October 1997, the Company entered into a joint venture
agreement with Atio Corporation (PTY) Ltd. of South Africa and Atio
International Corporation, Inc. whereby Atio International acquired a 50 percent
interest in Venturian Software through funding provided by Atio Corporation
(PTY). Venturian Software changed its name to Atio Corporation USA, Inc. upon
completion of the transaction. The operations of the parent corporation,
Venturian Corp., consist primarily of investment and management activities.

Napco International Inc.

Napco International Inc. ("Napco") is a distribution, manufacturing and service
business that sells a broad line of defense-related products to commercial
customers, the U.S. government and to foreign governments.

With respect to Napco International, one of the primary risks
relates to its export sales, which could be affected by political decisions by
the U.S. government, which could prevent future sales to foreign nations, or
monetary, military or economic conditions in certain countries that may affect
sales in such countries. Management believes that these risks are reduced by
Napco's wide geographic and product diversification. While historically there
has not been a reliance on one single customer, during 1999, sales to customers
in one foreign country accounted for 14 percent of Napco's sales. During 1998,
sales to customers in one other foreign country accounted for 20 percent of
Napco's sales. Sales to U.S. government agencies accounted for less than 10
percent of Napco's sales in 1999, and were 35 and 10 percent of Napco sales
during 1998 and 1997. Sales to one other customer in the United States accounted
for approximately 23 percent of Napco sales during 1997. Other factors, such as
competition, the

<PAGE>

potential for labor disputes and interruption in sources of supply also could
cause results to differ.

Typically, Napco's sales are made in United States currency.
However, from time to time Napco may enter into contracts denominated in foreign
currency. Napco has sales offices or representatives located in over 60
countries throughout the world. Napco's operations are conducted through its
various product divisions and through its subsidiary, International Precision
Machining, Inc.

The Ordnance Division markets replacement parts for most U.S.-made
military wheeled and tracked vehicles. Its product line covers a wide variety of
items ranging from power train components to tank track. Ordnance Division sales
comprised 65.4 percent, 63.5 percent and 77.1 percent of Napco's total sales for
the years ended December 31, 1999, 1998 and 1997.

The Defense Electronics Division designs, manufactures and markets a
broad range of tactical military electronics equipment, including VHF FM
tactical manpack radios, secure handsets, and active noise reduction intercom
systems. Spare parts are supplied for many U.S. manufactured systems at either
the component or assembly level. The division also designs and supplies
transportable shelters for a variety of applications, such as air traffic
control, ground-to-air communications, command air control, electronic warfare
or for mobile repair facilities. The Defense Electronics Division's sales
comprised 22.3 percent, 9.4 percent and 11.4 percent of Napco's total sales for
the years ended December 31, 1999, 1998 and 1997.

The Tank Automotive Division designs and markets proprietary
modernization kits to improve the reliability, maintainability and performance
of, and to increase the capabilities of, a wide variety of U.S. military wheeled
and tracked vehicles. The division provides technical assistance for the
installation and maintenance of these repowering systems as well as continuing
parts support. The Tank Automotive Division also supplies new trucks, vans and
other wheeled and tracked vehicles for military, medical, industrial and
construction applications. Tank Automotive Division sales were 1.5 percent, 19.3
percent and 3.1 percent of Napco's total sales for the years ended December 31,
1999, 1998 and 1997.

The Special Products Division markets a range of light weapons
systems, spare parts and accessories. Sales for the Special Products Division
comprised .7 percent, 2.0 percent and 1.6 percent of Napco's total sales for the
years ended December 31, 1999, 1998 and 1997.

International Precision Machining, Inc. (IPM), founded in 1992, is a
majority-owned subsidiary of Napco. IPM is a machining job shop that provides
precision turning and milling services to customer specifications. Sales at IPM,
excluding sales to Napco, comprised 10.1 percent, 5.8 percent and 6.8 percent of
Napco's total sales for the years ended December 31, 1999, 1998 and 1997.

Napco's products are either supplied from inventory, manufactured or
purchased from vendors to meet specific customer orders. Napco does not
routinely allow cancellation of customer orders. However, at times Napco may
accommodate cancellation requests from customers in order to preserve goodwill.
Increases in inventory attributable to cancelled orders and returns from
customers have not been material.

Napco generally warrants the products it sells for a period of one
year, agreeing to repair or replace defective items. Warranty expense has not
been material.

Napco markets a broad variety of products and generally has
alternate sources of supply for the items it sells. In those instances where
Napco has only a single source of supply, the

<PAGE>

suppliers generally are large, financially stable companies. Napco has not
experienced, and management has no reason to believe that Napco will experience,
any interruption in supply.

Substantially all of Napco's foreign shipments are licensed by
either the United States Commerce or State Departments.

Napco's sales by geographic region for the last three years were as
follows (in thousands):

1999 1998 1997
---- ---- ----

United States and Canada $ 5,539 $20,036 $14,264
Europe 6,275 5,921 4,595
Far East 1,917 10,778 3,974
Mediterranean and Middle East 6,987 3,904 1,989
Latin America 1,326 1,044 1,910
Africa 420 30 117
------- ------- -------
$22,464 $41,713 $26,849
======= ======= =======

During 1999, sales to customers in one foreign country accounted for
14 percent of Napco's sales. During 1998, sales to customers in one foreign
country accounted for 20 percent of Napco's sales. During 1997, no sales to
customers in foreign countries accounted for more than 10 percent of Napco's
sales. In general, the company considers Napco's sales to customers in specific
countries to be more relevant than sales to individual foreign customers because
the primary risks with respect to its export sales relate to political decisions
by the U.S. government, which could prevent future sales to foreign nations, or
monetary, military or economic conditions in certain countries that may affect
sales in such countries.

Napco's sales in the United States were $5,319,000, $19,821,000 and
$13,952,000 in 1999, 1998 and 1997 and consisted primarily of sales to various
U.S. government agencies and to a large number of commercial customers. During
1999, sales to U.S. government agencies accounted for less than 10 percent of
Napco sales. During 1998 and 1997, sales to U.S. government agencies accounted
for 35 and 10 percent of Napco sales. During 1997, sales to one customer in the
United States accounted for 23 percent of Napco sales. However, historically,
there has not been a reliance on any one customer.

Competition

Napco is one of the major independent suppliers of a broad line of parts and
components for United States military vehicles and other equipment maintained by
foreign governments. Because there are many other suppliers of such parts and
components, the pricing of Napco's products is highly competitive.

Backlog

Napco's order backlog totaled $23,413,000 at December 31, 1999, compared with
$12,266,000 at December 31, 1998. Napco booked nearly $35 million in new orders
in 1999, including a a $4.5 million order from the U.S. Tank-Automotive
Armaments Command (TACOM) for upgrade kits for M113 personnel carriers. The
order backlog was $36,687,000 at December 31, 1997, which included two
significant orders - a $15,987,000 order for M113 upgrade kits, and an
$8,200,000 contract from a foreign government for repowering kits for M41 light
tanks. These contracts were substantially completed during 1998. Management
expects that nearly all of the balance of its December 31, 1999 backlog will be
filled during 2000. Year-end backlog can indicate the

<PAGE>

level of sales in the subsequent year. Therefore, management expects that sales
will increase in 2000 compared with 1999 sales levels based on December 31, 1999
backlog.

Napco's business with the U.S. Government is principally comprised
of firm, fixed price contracts and therefore not subject to renegotiation of
profits, nor are they subject to termination at the unilateral election of the
U.S. Government.

Employees

Napco employed 114 people at December 31, 1999.

Atio Corporation USA, Inc.

Atio USA, formerly Venturian Software Enterprises, Inc. (Venturian Software),
provides multimedia call center management integration software under the trade
name Cybercall(R) to the e-commerce market.

Prior to October 1997, Venturian Software was a 90 percent owned
subsidiary of Venturian Corp. and prior to December 1996 was an 80 percent owned
subsidiary of Venturian Corp. Effective October 1, 1997, Venturian Corp. entered
into a joint venture agreement with Venturian Software, Atio Corporation PTY
Ltd. (Atio PTY) of South Africa, Atio Corporation International, Inc. (Atio
International) and Venturian Software's minority shareholder and president,
whereby Atio International acquired a 50 percent interest in Venturian Software
through funding provided by Atio PTY.

Pursuant to the terms of the joint venture agreement, Venturian
Software issued 2,000,000 shares of its common stock to Atio International in
exchange for $3,500,000 to be paid in installments and a royalty-free license
with respect to Atio International's AtioCall products. As a result of this
transaction, Venturian Corp. owned 45 percent of Venturian Software effective
October 1, 1997. Venturian Software changed its name to Atio Corporation USA,
Inc. (Atio USA) upon completion of the transaction. As of October 1, 1997,
Venturian Corp. began accounting for its investment in Atio USA under the equity
method of accounting. Venturian Corp.'s results of operations include all of the
results of Atio USA for the nine months ended September 30, 1997. Venturian
Corp. recorded $1,040,000 of equity in losses of unconsolidated subsidiary for
its share of Atio USA's losses for the year ended December 31, 1998 and $644,000
for the three months ended December 31, 1997. Venturian Corp.'s investment in
Atio USA was fully written off during 1998. Due to additional financing provided
by Atio International and the conversion of debt to stock, Venturian's
investment in Atio USA was reduced to 27 percent during 1999.

Venturian Corp. also entered into a shareholders agreement in
connection with the joint venture agreement which, among other things, sets
forth certain matters with respect to the governance of Atio USA and various
terms in connection with additional capital call requirements. The principal
terms of the shareholders agreement terminate if a registration statement filed
by Atio USA in connection with the sale of its common shares is declared

<PAGE>

effective by the Securities and Exchange Commission and the sale of common
shares is consummated.

In December 1999, the company entered into an agreement and plan of
merger whereby Atio USA will merge with and into CE Software Holdings, Inc.
(Nasdaq:CESH). At the time of the merger, CESH's operating subsidiary, CE
Software, Inc. will be spun off through the distribution of all of its stock to
CESH's shareholders. CESH will remain a public company and its shares are
expected to initially be traded on the Nasdaq SmallCap Market. The terms of the
merger agreement provide for Venturian to receive 236,842 shares of CESH in
exchange for its existing interest in Atio USA. The agreement also requires
Venturian, either by exchange of indebtedness, by cash or by a combination, to
purchase 148,900 shares of CESH common stock for $964,872, at the date of
merger, or it will forfeit a similar amount of shares. Upon completion of the
merger, Venturian will own approximately 385,000 shares of CESH. The shares will
be unregistered and subject to customary trading restrictions.

In connection with the agreement, the company advanced Atio USA
$150,000 as a loan to provide for short-term funding requirements. The loan is
collateralized by an interest in the assets of Atio USA and shall be offset
against the $964,872 owed by Venturian upon closing of the merger agreement.

There are several parties to the merger in addition to Venturian,
Atio USA and CESH. The completion of the merger is subject to various terms and
conditions, as set forth in the agreement, including shareholder approval by
CESH shareholders and additional private equity financing for CESH. On February
25, 2000, the merger agreement was amended to extend the closing date from
February 29, 2000 to April 30, 2000.

<PAGE>

Venturian Corp.

Employees

Venturian Corp. employed 4 individuals at December 31, 1999.

Executive Officers

The present executive officers are:

Name Office Age Officer Since
- ----------------- -------------------------------- --- -------------
Gary B. Rappaport Chairman of the Board and 63 1983(1)
Chief Executive Officer -
Venturian Corp. and
Napco International Inc.

Mary F. Jensen Chief Financial Officer - Venturian 45 1987(1)
Corp. and Napco International Inc.

Charles B. Langevin Director, President of 54 1986(1)
Napco International Inc.

Reinhild D. Hinze Treasurer, Vice President 50 1985(1)
Operations - Napco
International Inc. and
Assistant Secretary - Venturian
Corp.

Don M. House, Jr. President and Chief Operating 47 1998(2)
Officer - Venturian Corp.

(1) Each of the indicated officers has been employed by the Company for more
than five years.

(2) Mr. House joined the Company in December 1997. In February 1998 he was
appointed President and Chief Operating Officer by the Board of Directors.
Previously, Mr. House was President of Porsa System, Inc., a designer and
builder of custom fixtures and displays, from July 1996 to July 1997. Mr. House
also served as President of P.C. Express, Inc. from April 1995 to December 1995
and President of Apeiron, Inc., a start-up manufacturer of high precision laser
measurement systems, from May 1994 to April 1995. Mr. House was President of
Comtrol Corp., a manufacturer of multiport serial communications controllers
from October 1989 to October 1993. Prior to October 1989, Mr. House served in
various capacities at Honeywell Information Systems for more than 10 years.

<PAGE>

Item 2. Properties

The Company's corporate offices consist of approximately 19,000 square feet
located in a 386,000 square foot industrial plant building owned by the Company.
These offices are principally used in Napco's sales and administrative
activities. The building is constructed of steel frame, block and brick. The
building is a multi-tenant building with twenty-seven additional tenants
presently occupying space (see Note 4 to the Consolidated Financial Statements
in the Company's 1999 Annual Report to Shareholders). During 1997, the Company
formed, and transferred the rental real estate to its wholly-owned subsidiary,
Hopkins Tech Center LLC. The Company also refinanced debt related to the rental
real estate. The note payable is payable in monthly installments, including
interest of 8.53 percent per annum, through October 2007, with the remaining
balance due at that time. In addition to the monthly installments of principal
and interest, the Company is also required to escrow amounts for the payment of
property taxes and certain other operating expenses.

Adjacent to the corporate offices is a 123,000 square foot warehouse
in which Napco performs receiving, inspection, packaging, shipping, light
manufacturing and repair and inventory functions.

The Company believes that its facilities, including its arrangements
with subcontractors, as well as its machinery and equipment, are more than
adequate for its current volume. The Company is continually re-evaluating the
adequacy of its facilities.

Item 3. Legal Proceedings

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

<PAGE>

Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Information required by this item has been included in the Company's 1999 Annual
Report to Shareholders, incorporated herein by reference. Such information and
the related Annual Report caption and page references are: the high and low bid
prices of the Company's common stock for the period ended December 31, 1999,
under the caption "Quarterly Financial Data," page 26; the number of common
stockholders of record as of December 31, 1999, under the caption "Five-Year
Financial Summary," page 27; the Company's dividend policy, under the caption
"Shareholder Information," page 10; and dividend history information, in the
"Five-Year Financial Summary," page 27.

Item 6. Selected Financial Data

Information required by this item has been included in the Company's 1999 Annual
Report to Shareholders, incorporated herein by reference under the caption
"Five-Year Financial Summary," page 27.

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of
Operations is contained in the Company's 1999 Annual Report to Shareholders,
incorporated herein by reference, pages 3 - 10.

Item 7A. Quantitative and Qualitive Disclosures About Market Risk

The Company's interest income and expense is affected by changes in the general
level of U.S. interest rates. Changes in the U.S. interest rates affect the
interest earned on the Company's cash equivalents and the interest paid on its
debt. The Company maintains approximately 91 percent of its debt with a fixed
rate of interest. The Company uses sensitivity analysis to determine its
exposure to changes in interest rates. The Company does not anticipate exposure
to interest rate market risk will have a material impact on the Company's future
earnings, cash flow, or fair value of debt instruments. As cash equivalents are
short-term investments, the market risk related to interest income as well as
the fair value of cash equivalents, which represent short-term government
securities, will not have a material impact on the Company.

The Company does business with foreign countries. All sales with foreign
countries are billed and received in U.S. dollars and, as a result, the
quantitative and qualitative market risk related to these receivables is not
deemed material.

<PAGE>

Item 8. Financial Statements and Supplementary Data

The following pages of the Company's 1999 Annual Report to Shareholders are
incorporated herein by reference as follows:

(a) Financial Statements: Page
No(s).
------
Consolidated Statements of Operations, 11
three years ended December 31, 1999

Consolidated Balance Sheets, 12
as of December 31, 1999 and 1998

Consolidated Statements of Cash Flows, 13
three years ended December 31, 1999

Consolidated Statements of Changes in 14
Shareholders' Equity, three years ended
December 31, 1999

Notes to the Consolidated Financial Statements 15 - 24

Report of Independent Certified Public Accountants 25

(b) Supplementary Data:

Quarterly Financial Data 26

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

None.

<PAGE>

Part III

Items 10, 11, 12 & 13

Item 10 (Directors and Executive Officers of the Registrant), Item 11 (Executive
Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and
Management) and Item 13 (Certain Relationships and Related Transactions),
constituting Part III of Form 10-K, are incorporated herein by reference to the
company's definitive Proxy Statement with respect to its 1999 Meeting of
Shareholders, which will be filed not later than 120 days after the close of the
fiscal year.

Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on 8-K
Page
----
(a) Financial Statements and Schedules

(1) Financial Statements - See Part II, Item 8 (a) for a
complete listing of financial statements incorporated by
reference from the company's 1998 Annual Report to
Shareholders

(2) Financial Statement Schedules

Report of Independent Certified Public
Accountants on Schedule 13

Schedule II Valuation and Qualifying Accounts, for each
of the three years in the period ended
December 31, 1999 14

(3) Other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
provided in the financial statements or the notes thereto.

(b) Reports on Form 8-K

(1) There were no reports on Form 8-K during the fourth quarter of 1999.

Exhibit (13)
1999 Annual Report to Shareholders, incorporated herein by reference

Exhibit (21)
Subsidiaries of the Registrant

Exhibit (23.1)
Consent of independent certified public accountants to incorporate
by reference to the Registrant's Registration Statements on Form S-8

Exhibit (27.1)
Financial Data Schedule

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE

Board of Directors
Venturian Corp.

In connection with our audit of the consolidated financial statements of
Venturian Corp. and Subsidiaries referred to in our report dated February 4,
2000 (except for Note 16, as to which the date is February 25, 2000) which is
included in the Annual Report to shareholders and incorporated by reference, we
have also audited Schedule II for each of the three years in the period ended
December 31, 1999. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota
February 4, 2000 (except for Note 16,
as to which the date is February 25, 2000)

<PAGE>

Venturian Corp. and Subsidiaries

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Three years ended December 31, 1999

<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance
beginning of costs and other Deductions at end
Description period expenses accounts (a) of period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:

Year ended December 31, 1997 $ 196,000 $ 43,000 $ -- $ 44,000 $ 195,000

Year ended December 31, 1998 $ 195,000 $ 103,000 $ -- $ 81,000 $ 217,000

Year ended December 31, 1999 $ 217,000 $ 33,000 $ -- $ 50,000 $ 200,000
</TABLE>

(a) Write-offs, less recoveries.

<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.

By: /s/ Gary B. Rappaport
Gary B. Rappaport
Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securites 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.

/s/ Gary B. Rappaport
Gary B. Rappaport
Chairman of the Board, Director and
Chief Executive Officer March 15, 2000

/s/ Don M. House, Jr.
Don M. House, Jr.
President and Chief Operating Officer March 15, 2000

/s/ Morris M. Sherman
Morris M. Sherman
Director March 15, 2000

/s/ Charles B. Langevin
Charles B. Langevin
Director March 15, 2000

/s/ J. Stephen Schmidt
J. Stephen Schmidt
Director March 15, 2000

/s/ Anthony S. Cleberg
Anthony S. Cleberg
Director March 15, 2000

/s/ Mary F. Jensen
Mary F. Jensen
Controller, Treasurer and
Chief Financial Officer March 15, 2000

EXHIBIT 13

Management's Discussion and Analysis of Results of Operations

Forward-looking statements contained throughout this Annual Report
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. There are certain important factors that could
cause results to differ materially from those anticipated by the statements made
herein, certain of which are set forth. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. Among the factors that
could cause actual results to differ materially are the following:

Unconsolidated Subsidiary

In October 1997, the company entered into a joint venture agreement
that reduced the company's ownership of Venturian Software, Inc. to 45 percent
effective October 1, 1997. Venturian Software changed its name to Atio
Corporation USA, Inc. (Atio USA) upon completion of the transaction. Prior to
October 1, 1997, Venturian Software, Inc. was included in the company's results
of operations. As of October 1, 1997, the company began accounting for its
investment in Atio USA under the equity method of accounting. The company
recorded $1,040,000 and $644,000 of equity in losses of unconsolidated
subsidiary for its share of Atio USA's losses for the year ended December 31,
1998 and for the three months ended December 31, 1997. The company's investment
in Atio USA was fully written off during 1998.

Net Sales

Consolidated net sales were $22,464,000, $41,713,000 and $27,579,000
for the years ended December 31, 1999, 1998 and 1997.

<PAGE>

Based on beginning backlog of $12,266,000, management expected that
Napco sales of $22,464,000 in 1999 would not be at the same level as in 1998
(see Backlog). Napco sales increased significantly in 1998 to $41,713,000,
compared to 1997 sales of $26,849,000. Sales in 1998 included shipments against
two large programs, which were substantially shipped by 1998 year-end. The
largest program, which was a $15,987,000 contract with the U.S. Army Tank and
Automotive Command for upgrade kits for the M113 armored personnel carrier,
contributed $14,071,000 to Napco sales for the year. The second program, which
was an $8,200,000 contract to repower M41 light tanks, contributed $8,082,000 to
Napco sales for the year.

Atio USA sales included in results of operations were $730,000 for
the nine months ended September 30, 1997.

Cost of Products Sold

Consolidated cost of products sold was 74 percent, 71 percent and 72
percent of net sales for the years ended December 31, 1999, 1998 and 1997.

Napco markets a wide variety of defense-related products, with
relatively high variation in profit margin from product to product. Nonetheless,
cost of products sold has remained relatively stable at approximately 74
percent, 71 percent and 72 percent of Napco sales in 1999, 1998 and 1997. Cost
of products sold for electronics products is typically higher than for vehicle
related products. In 1999, sales of electronics products with cost of products
sold of 81 percent comprised approximately 22 percent of Napco's total sales,
which resulted in a slightly higher cost of products sold for the year. In 1998
and 1997, sales of electronics products comprised approximately 9 and 11 percent
of Napco's total sales.

Cost of products sold was 11 percent of Atio USA net sales for the
nine months ended September 30, 1997.

Operating Expenses

Consolidated operating expenses were $7,646,000 in 1999, compared
with $9,204,000 in 1998 and $9,633,000 in 1997.

Napco operating expenses were $6,864,000, $8,365,000 and $6,754,000
for the years ended December 31, 1999, 1998 and 1997.

In 1999, Napco sales and marketing expenses were $3,068,000,
including commission expense of $539,000. In 1998, Napco sales and marketing
expenses totaled $3,536,000, including commission expense of $663,000. In 1997,
Napco sales and marketing expenses were $2,992,000, including commission expense
of $459,000. Commission expense was 2.4 percent of net sales in 1999, 1.6
percent of net sales in 1998, and 1.7 percent of net sales in 1997. Commission
expense as a percent of net sales was lower in 1998 and 1997 because

<PAGE>

a higher proportion of Napco sales were to the U.S. government and to domestic
customers on which no commission is paid.

Napco sales and marketing expenses, excluding commission expense,
were $2,529,000 in 1999, $2,873,000 in 1998 and $2,533,000 in 1997. Advertising,
travel and Napco's participation in trade shows decreased compared with 1998 and
1997, contributing to lower expense levels. In addition, bad debt expense and
late shipment costs decreased in 1999. In 1998, higher costs were partially
attributable to increased travel expenses and other costs related to the $8.2
million repower program. Excluding commission expense, sales and marketing
expenses were approximately 11 percent of net sales in 1999, approximately 7
percent of net sales in 1998 and approximately 9 percent of net sales in 1997.

Napco administrative expenses were $1,936,000, $2,942,000 and
$1,972,000 in 1999, 1998 and 1997. In 1998, administrative costs were higher
primarily due to incentive compensation accruals.

Napco warehousing expense was $1,860,000 and $1,887,000 in 1999 and
1998. Napco warehousing expense was $1,790,000 in 1997. Warehousing expense was
approximately 8, 5 and 7 percent of net sales in 1999, 1998 and 1997. Napco
warehousing expense increased in 1998 to $1,887,000, primarily due to additional
warehousing costs incurred due to costs related to the $15.9 million U.S.
government program. In 1999, Napco continued to incur similar costs in
connection with a follow-on order to this program for $4.5 million, which is
expected to be shipped in the first quarter of 2000.

Atio USA operating expenses totaled $2,424,000 for the nine months
ended September 30, 1997, including sales and marketing expenses of $1,107,000
and administrative expenses of $1,317,000.

Corporate overhead expenses were $782,000, $839,000 and $455,000 for
the years ended December 31, 1999, 1998 and 1997. Management expected that
corporate overhead would increase in 1998 due to the hiring of a new company
president as well as costs incurred in connection with retaining an investment
banking firm to assist with the company's strategy to pursue acquisitions in the
consolidating defense industry, as well as retaining a public relations firm to
bring attention to the company's activities.

Operating Profit (Loss)

The company reported a consolidated operating loss of $1,697,000 in
1999, a consolidated operating profit of $2,753,000 in 1998 and a consolidated
operating loss of $1,979,000 in 1997.

In 1999, Napco generated an operating loss of $915,000, primarily as
a result of decreased sales. Napco generated operating profits of $3,592,000 and
$251,000 for the years ended December 31, 1998 and 1997. In 1998, operating
profits increased substantially over the prior year primarily as a result of
significantly higher sales. Operating profits in 1997 were low due to a 3
percent decrease in sales, and also due to an increase in

<PAGE>

operating expenses, which were incurred in connection with orders that did not
have an impact on sales until 1998.

Atio USA generated operating losses of $1,775,000 for the nine
months ended September 30, 1997.

Other Income (Expense)

Rental income, net of expenses, was $612,000, $644,000 and $465,000
in 1999, 1998 and 1997, and was derived from rental real estate owned by the
company (see Note 4 to the Consolidated Financial Statements). Rental income
increased substantially in 1998 due to increased occupancy rates as well as to
decreased utility and maintenance costs.

The company recorded a gain of $817,000 during 1999 as a result of
the demutualization of Manulife Financial Corporation in September 1999. The
company holds investments in certain life insurance policies issued by Manulife
Financial Corporation, and the gain was recorded based on the price of the
shares issued to the company on the date of the demutualization.

In November 1999, the company agreed to a litigation settlement
related to broker fees claimed in connection with the Atio USA Corporation, Inc.
joint venture agreement (see Note 3), and incurred settlement costs totaling
$284,000.

Interest expense was $594,000, $782,000 and $512,000 in 1999, 1998
and 1997. Interest expense was lower in 1999 due to lower levels of borrowing
against the company's line of credit. Interest expense in 1998 increased as a
result of the refinancing of the company's rental real estate in September 1997
and due to increased borrowings against the company's line of credit to fund
operations. Interest expense also includes interest related to the company's
deferred compensation plan (see Note 8 to the Consolidated Financial
Statements).

Income Taxes

The company had no income tax expense or benefit for the years ended
December 31, 1999 and 1997. The company did not record a tax benefit for 1999
and 1997 because the company was unable to carry back the losses, and future use
cannot be assured. The company recorded income tax expense of $63,000 for the
year ended December 31, 1998. While the company had net operating loss
carryforwards sufficient to offset a substantial portion of its taxable income
in 1998, income tax expense was attributable to alternative minimum tax. At
December 31, 1999, the company had approximately $1,600,000 of federal net
operating loss carryforwards and $2,000,000 of state net operating loss
carryforwards, which expire through the year 2014.

<PAGE>

Backlog

Napco's order backlog totaled $23,413,000 at December 31, 1999,
compared with $12,266,000 at December 31, 1998. Napco booked nearly $35 million
in new orders in 1999, including a a $4.5 million order from the U.S.
Tank-Automotive Armaments Command (TACOM) upgrade kits for M113 personnel
carriers. The order backlog was $36,687,000 at December 31, 1997, which included
two significant orders - a $15,987,000 order for M113 upgrade kits, and an
$8,200,000 contract from a foreign government for repowering kits for M41 light
tanks. These contracts were substantially completed during 1998 (see Net Sales).
Management expects that nearly all of the balance of its December 31, 1999
backlog will be filled during 2000. Year-end backlog can indicate the level of
sales in the subsequent year. Therefore, management expects that sales will
increase in 2000 compared with 1999 sales levels based on December 31, 1999
backlog.

Management's Discussion and Analysis of Financial Condition

The company's current ratio was 2.2 to one at December 31, 1999,
compared with 3.2 to one at the end of 1998. Long-term debt at December 31, 1999
totaled $4,179,000 and was approximately 18 percent of total assets at year-end
1999. Cash and cash equivalents at December 31, 1999 decreased to $1,249,000,
from $3,009,000 at the end of last year.

Napco has an agreement with a bank to provide a $4,000,000 line of
credit for international transactions and cash advances. The agreement provides
that cash or letter of credit advances be collateralized by the cash surrender
value of certain of the company's life insurance policies, certain accounts
receivable and inventory, or a restricted cash balance.

Advances on the $4,000,000 line of credit bear interest at the
bank's base rate. At December 31, 1999, approximately $2,782,000 was available
for cash and letter of credit advances pursuant to the agreement. There were no
cash advances outstanding against this line of credit at December 31, 1999 and
1998, and approximately $1,218,000 and $729,000 in letter of credit advances
were outstanding.

Napco has additional lines of credit available for international
transactions on a transaction basis for which restricted cash balances are
required. Letters of credit issued by financial institutions, which were
collateralized by a restricted cash balance, totaled $545,000 and $790,000 as of
December 31, 1999 and 1998.

As of October 1, 1997, Venturian Corp. began accounting for its
investment in Atio USA under the equity method of accounting. Proceeds from a
joint venture agreement were used to fund the operations of Atio USA.

<PAGE>

In December 1999, the company entered into an agreement and plan of
merger whereby Atio USA will merge with and into CE Software Holdings, Inc.
(Nasdaq:CESH). At the time of the merger, CESH's operating subsidiary, CE
Software, Inc., will be spun off through the distribution of all of its stock to
CESH's shareholders. CESH will remain a public company and its shares are
expected to initially be traded on the Nasdaq SmallCap Market. The terms of the
merger agreement provide for Venturian to receive 236,842 shares of CESH in
exchange for its existing interest in Atio USA. The agreement also requires
Venturian, either by exchange of indebtedness, by cash or by a combination, to
purchase 148,900 shares of CESH common stock for $964,872, at the date of
merger, or it will forfeit a similar amount of shares. Upon completion of the
merger, Venturian will own approximately 385,000 shares of CESH. The shares will
be unregistered and subject to customary trading restrictions.

In connection with the merger agreement, the company advanced Atio
USA $150,000 as a loan to provide for short-term funding requirements. The loan
is collateralized by an interest in the assets of Atio USA and will be offset
against the $964,872 owed by Venturian upon closing of the merger agreement.

There are several parties to the merger in addition to Venturian,
Atio USA and CESH. The completion of the merger is subject to various terms and
conditions, as set forth in the agreement, including shareholder approval by
CESH shareholders and additional private equity financing for CESH. Accordingly,
there can be no assurance that the merger will be consummated. On February 25,
2000, the merger agreement was amended to extend the closing date from February
29, 2000 to April 30, 2000.

<PAGE>

except for the conversion of the debenture, for a period of two years neither it
nor any of its members or affiliates will purchase any capital stock or other
securities or rights to purchase capital stock or other securities of the
company without the company's prior written consent, provided, however, that
Quarterdeck may purchase shares of the company's common stock in the open market
with a purchase price not in excess of $55,000 in the aggregate; and provided,
further, that Quarterdeck may purchase in the open market shares of capital
stock or other securities or rights to the extent necessary to maintain its
percentage interest in the company. In October 1998, the company authorized
Quarterdeck to acquire up to an additional 38,500 shares of Venturian Corp.
common stock in the open market. As of December 31, 1999, Quarterdeck and its
affiliates have purchased 41,800 shares of Venturian Corp. common stock in the
open market.

Quarterdeck Public Equities, LLC is an affiliate of Quarterdeck
Investment Partners, Inc., an investment banking firm focusing in the global
aerospace and defense markets. During 1998, the company announced that it had
retained Quarterdeck Investment Partners as its financial adviser in an
initiative to participate in the consolidation of small companies in the global
defense industry.

Management believes that the company's present cash reserves and
available credit should be sufficient to fund its operations and to
collateralize all international transactions. In addition, management has been
successful in obtaining insurance bonds with no collateral requirements for
certain of its international transactions rather than utilizing its traditional
bank lines of credit. The company has additional sources of funds in the form of
borrowings against life insurance policies or other non-current assets.

Inflation has not adversely affected the company's business and
financial performance. The company is not capital intensive and, therefore,
depreciation on a current cost basis would not significantly affect results. The
company had no material commitments for capital expenditures as of December 31,
1999.

Year 2000 Analysis

The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000.

The company incurred approximately $225,000 on hardware and software
products and services for its internal information systems to insure Y2K
compliance. All costs for Y2K compliance have been expensed in the period
incurred and have been paid for from operating funds. The impact of Y2K on the
company has not been material and the company does not anticipate any additional
expenditures in connection with Y2K issues. While the company has not completed
an assessment of the estimated internal time and associated wages for compliance
activities, it estimates that its total compliance cost (including external
expenditures and internal resources) was approximately $300,000. Y2K compliance
will continue to be monitored by the company to ensure that future compliance
issues are identified and resolved.

<PAGE>

Shareholder Information

The company paid a quarterly dividend of $.045 per share to
shareholders on September 30, 1999. Total dividends paid per share were $.09 for
the year ended December 31, 1999.

The company's Board of Directors declared an eleven-for-ten stock
split in August 1999. The stock split was effected on October 15, 1999 to
shareholders of record on September 30, 1999. In February 1998, the company's
Board of Directors declared a three-for-two stock split based on a record date
of April 15, 1998. The stock split was effected on April 30, 1998.

The company's common stock is traded on the Nasdaq Stock Market's
National Market. In December 1999, Nasdaq notified the company that it was not
in compliance with Nasdaq's public float requirement, which requires a minimum
value of $5,000,000 for the company's public float. The company was given until
March 6, 2000 to remedy this deficiency. The company believes that this
deficiency had been remedied prior to March 6, 2000, and has requested and been
granted a hearing on April 6, 2000 at which Nasdaq will review documentation
provided by the company demonstrating what the company believes to be its
compliance. If the the outcome of the hearing is not favorable, the company's
common stock could be delisted from Nasdaq's National Market and the company
would seek inclusion on the Nasdaq SmallCap Market. The company believes it
meets, and will continue to meet, the inclusion standards for the Nasdaq
SmallCap Market. The company does not believe that listing on the SmallCap
Market would have an adverse effect on the price and liquidity of the company's
common stock.

On February 10, 2000, the Board authorized the repurchase up to five
percent of the company's then outstanding shares of common stock. A buy-back of
the company's shares at current market prices, which are significantly below
book value, represents an opportunity to increase per share value for the
company's remaining shareholders. As of March 6, 2000, 23,000 shares had been
repurchased at an average price of $5.92 per share.

<PAGE>

VENTURIAN CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share data)

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ............................................................... $ 22,464 $ 41,713 $ 27,579

Cost of products sold ................................................... 16,515 29,756 19,925
----------- ----------- -----------
Gross profit .......................................................... 5,949 11,957 7,654

Operating expenses
Sales and marketing ................................................... 3,068 3,536 4,099
Administrative ........................................................ 2,718 3,781 3,744
Warehousing ........................................................... 1,860 1,887 1,790
----------- ----------- -----------
Total operating expenses ............................................ 7,646 9,204 9,633
----------- ----------- -----------

Operating profit (loss) ................................................. (1,697) 2,753 (1,979)

Other income (expense)
Interest income ....................................................... 61 72 22
Rental income, net of expenses ........................................ 612 644 465
Gain from demutualization ............................................. 817 -- --
Gain from life insurance proceeds ..................................... -- 218 --
Gain (loss) on sale of property and equipment ......................... -- -- 306
Interest expense ...................................................... (594) (782) (512)
Litigation settlement ................................................. (284) -- --
Other ................................................................. 6 29 17
----------- ----------- -----------
618 181 298
----------- ----------- -----------

Earnings (loss) before income taxes and
equity in losses of unconsolidated subsidiary ......................... (1,079) 2,934 (1,681)

Income taxes ............................................................ -- 63 --
----------- ----------- -----------

Earnings (loss) before equity in losses of unconsolidated subsidiary .... (1,079) 2,871 (1,681)

Equity in losses of unconsolidated subsidiary ........................... -- (1,040) (644)
----------- ----------- -----------

NET EARNINGS (LOSS) ..................................................... $ (1,079) $ 1,831 $ (2,325)
=========== =========== ===========

Net earnings (loss) per share - Basic ................................... $ (.81) $ 1.43 $ (1.87)
=========== =========== ===========

Net earnings (loss) per share - Diluted ................................. $ (.81) $ 1.35 $ (1.87)
=========== =========== ===========

Weighted average shares outstanding
Basic .................................................................. 1,337,095 1,283,822 1,240,576
Diluted ................................................................ 1,337,095 1,360,864 1,240,576
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>

VENTURIAN CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)

<TABLE>
<CAPTION>
December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................ $ 1,249 $ 3,009
Restricted cash .......................................... 545 790
Marketable securities .................................... 402 --
Accounts receivable, less allowance
for doubtful accounts of $200 in
1999 and $217 in 1998 .................................. 4,443 4,579
Inventories .............................................. 6,736 4,587
Prepaid expenses and other ............................... 242 223
----------- -----------

Total current assets ................................... 13,617 13,188

PROPERTY AND EQUIPMENT - AT COST
Buildings and improvements ............................... 1,929 1,916
Equipment ................................................ 6,235 6,144
----------- -----------
8,164 8,060
Less accumulated depreciation and amortization ........... 6,021 5,739
----------- -----------
2,143 2,321
Land ..................................................... 230 230
----------- -----------
2,373 2,551

OTHER ASSETS
Cash surrender value of life insurance,
net of policy loans of $220 in 1999 and 1998 ........... 3,740 3,445
Rental real estate, net of accumulated
depreciation of $734 in 1999 and $572 in 1998 .......... 2,781 2,891
Other .................................................... 335 405
----------- -----------
6,856 6,741
----------- -----------

$ 22,846 $ 22,480
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft ........................................... $ 348 $ 161
Current maturities of long-term debt ..................... 230 211
Accounts payable ......................................... 1,930 1,565
Advances from customers .................................. 2,207 36
Accrued liabilities
Payroll and related benefits ........................... 487 986
Other .................................................. 977 849
Deferred revenue ......................................... -- 371
----------- -----------

Total current liabilities .............................. 6,179 4,179

LONG-TERM DEBT, LESS CURRENT MATURITIES .................... 4,179 4,424

DEFERRED COMPENSATION AND POSTRETIREMENT BENEFITS .......... 1,961 2,180

COMMITMENTS AND CONTINGENCIES .............................. -- --

SHAREHOLDERS' EQUITY
Common stock - authorized 30,000,000 shares of $1 par
value, issued 1,340,589 in 1999 and 1,333,715 in 1998 .. 1,341 1,334
Additional contributed capital ........................... 15,917 15,894
Accumulated deficit ...................................... (6,731) (5,531)
----------- -----------
10,527 11,697
----------- -----------

$ 22,846 $ 22,480
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>

VENTURIAN CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)

<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ................................................... $ (1,079) $ 1,831 $ (2,325)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................................... 582 570 536
Gain from demutualization ......................................... (817) -- --
Gain on sale of property and equipment ............................ -- -- (306)
Issuance of common stock for services ............................. 23 31 25
Gain from life insurance proceeds ................................. -- (218) --
Equity in losses of unconsolidated subsidiary ..................... -- 1,040 644
Change in assets and liabilities, net of effect
of change in ownership of subsidiary in 1997:
Restricted cash ............................................... 245 (699) (26)
Accounts receivable ........................................... 286 2,230 (2,712)
Inventories ................................................... (2,149) 834 (1,753)
Prepaid expenses and other .................................... (19) 228 (268)
Other ......................................................... 53 170 (319)
Accounts payable .............................................. 365 (1,781) 1,380
Advances from customers ....................................... 2,171 (446) 254
Accrued liabilities ........................................... (371) 719 10
Deferred revenue .............................................. (371) 89 282
Deferred compensation and
postretirement benefits ..................................... 193 266 245
Payments on deferred compensation
and postretirement benefits ................................. (412) (365) (349)
----------- ----------- -----------
Total adjustments ................................................. (221) 2,668 (2,357)
----------- ----------- -----------

Net cash provided by (used in) operating activities ................... (1,300) 4,499 (4,682)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable securities .......................... 415 -- --
Purchase of property and equipment .................................... (242) (753) (1,126)
Improvements to rental real estate .................................... (52) (98) (206)
Increase in cash surrender value ...................................... (295) (304) (318)
Proceeds from life insurance .......................................... -- 961 --
Proceeds from the sale of property and equipment ...................... -- -- 490
Net advances on note receivable from unconsolidated subsidiary ........ (150) -- (308)
Other ................................................................. 17 (17) 60
----------- ----------- -----------

Net cash used in investing activities ................................. (307) (211) (1,408)

CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft ........................................................ 187 (514) 266
Proceeds from line of credit .......................................... 2,200 10,900 8,550
Payments on line of credit ............................................ (2,200) (13,100) (6,350)
Proceeds from long-term debt .......................................... 26 925 4,031
Payments on long-term debt ............................................ (252) (437) (1,170)
Proceeds from life insurance loans .................................... -- -- 220
Payments of dividends ................................................. (121) -- --
Proceeds from issuance of common stock ................................ 7 474 5
----------- ----------- -----------

Net cash provided by (used in) financing activities ................... (153) (1,752) 5,552
----------- ----------- -----------

Net increase (decrease) in cash and cash equivalents .................... (1,760) 2,536 (538)
Beginning cash and cash equivalents ..................................... 3,009 473 1,011
----------- ----------- -----------

Ending cash and cash equivalents ........................................ $ 1,249 $ 3,009 $ 473
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>

VENTURIAN CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1999, 1998 and 1997
(In thousands)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON CONTRIBUTED ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 .......................... $ 1,240 $ 14,186 $ (5,037) $ 10,389
Effect of equity transactions of
unconsolidated subsidiary ....................... -- 1,267 -- 1,267
Issuance of common stock .......................... 3 27 -- 30
Net loss for 1997 ................................ -- -- (2,325) (2,325)
----------- ----------- ----------- -----------

Balance at December 31, 1997 ....................... 1,243 15,480 (7,362) 9,361

Issuance of common stock .......................... 91 414 -- 505
Net earnings for 1998 ............................ -- -- 1,831 1,831
----------- ----------- ----------- -----------

Balance at December 31, 1998 ....................... 1,334 15,894 (5,531) 11,697

Issuance of common stock .......................... 7 23 -- 30
Dividends at $.09 per share ....................... -- -- (121) (121)
Net loss for 1999 ................................ -- -- (1,079) (1,079)
----------- ----------- ----------- -----------

Balance at December 31, 1999 ........................ $ 1,341 $ 15,917 $ (6,731) $ 10,527
=========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>

NOTE 1 - PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Venturian Corp.
and its wholly-owned subsidiaries, Napco International Inc. (Napco) and Napco
International Foreign Sales Corporation, and Napco's majority-owned subsidiary,
International Precision Machining, Inc. On October 17, 1997, Atio Corporation
USA, Inc. (Atio USA, see Note 3) became Venturian's 45 percent-owned subsidiary.
Venturian's investment in Atio USA was reduced to 27 percent during 1999.
Significant intercompany accounts and transactions have been eliminated in
consolidation.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure 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.

A summary of the company's significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:

Cash and Cash Equivalents - The company considers its investments with an
original maturity of three months or less to be cash equivalents. The company
invests excess funds in reverse repurchase agreements for U.S. government
securities. There were no U.S. government securities repurchased under
agreements to resell at December 31, 1999. Substantially all the cash and cash
equivalents were held at one financial institution in Minnesota at December 31,
1999.

Supplemental disclosures of cash flow information for the Statements of Cash
Flows are as follows (in thousands):

Years ended December 31,
1999 1998 1997
---- ---- ----

Cash paid during the year for:
Interest........................... $420 $569 $288
Income taxes....................... 6 129 3

As of October 1, 1997, the company began accounting for its investment in Atio
USA under the equity method of accounting (see Note 3).

During 1997, the company made a capital contribution to Atio USA of $3,088,000,
through the forgiveness of amounts due to the company and recorded increases of
$1,267,000 to its additional contributed capital and to its investment in Atio
USA due to the effect of equity transactions of Atio USA. During 1999, the
company advanced Atio USA $150,000 (see Note 3).

Marketable Securities - The company's investments consist of equity securities
which were obtained as a result of an insurance company demutualization. These
investments are classified as available for sale, which requires the securities
to be reported at fair value, with unrealized gains and losses reported as a
separate component of shareholders' equity. At December 31, 1999, cost
approximated market value for all securities using the specific identification
method.

Accounts Receivable - The company grants credit to customers in the normal
course of business, but generally does not require collateral or any other
security to support amounts due. Management performs on-going credit evaluations
of customers. The company maintains allowances for potential credit losses
which, when realized, have been within management expectations.

The company has granted credit to three customers whose accounts receivable
balances as of December 31, 1999 were approximately $1,514,000.

<PAGE>

Inventories - Inventories are stated at the lower of cost or market, principally
using the specific identification method. A portion of Napco's inventory is
acquired on a speculative basis in varying quantities when it becomes available
for purchase. Napco's sales of this inventory may vary from the current period
to several years. It is the company's practice to classify this inventory, which
totaled $1,992,000 and $2,215,000 at December 31, 1999 and 1998, within current
assets. The company's obsolescence policy requires that purchases of this
inventory be written off if not sold after four years. The four-year period was
selected after a review of customers' historical buying patterns and is reviewed
annually to determine whether the period continues to be appropriate.

Property and Equipment - Depreciation and amortization are provided in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Depreciation is computed for financial reporting and
tax purposes using both accelerated and straight-line depreciation methods.
Estimated lives used in the calculation of depreciation for financial statement
purposes are:

Buildings and improvements................... 17-40 years
Equipment.................................... 3-15 years

Employee Stock Options - The company's employee stock option plans are accounted
for under the intrinsic value method. Under this method, compensation expense is
recognized for the amount by which the market price of the common stock on the
date of grant exceeds the exercise price of an option.

Warranties - The company records a warranty accrual at the time of sale for
estimated claims based on actual claims experience. The warranty for Napco's
products generally is for defects in material and workmanship for a period of
one year.

Foreign Currency - From time to time Napco enters into sales contracts
denominated in foreign currency. During 1997, Napco also entered into forward
exchange contracts with a bank to hedge against exchange rate fluctuations
related to such sales. Gains and losses on transactions in foreign currency and
forward exchange contracts are included in results of operations. There were no
forward exchange contracts outstanding at December 31, 1999 and 1998.

Revenue Recognition - The company recognizes revenue when goods are shipped or
services are rendered.

Net Earnings (Loss) Per Share - The company's basic net earnings (loss) per
share amounts have been computed by dividing net earnings (loss) by the weighted
average number of outstanding common shares. The company's diluted net earnings
(loss) per share is computed by dividing net earnings (loss), plus the interest
expense (net of tax) applicable to convertible debentures in 1999 and 1998 by
the weighted average number of outstanding common shares and common share
equivalents relating to stock options and convertible debentures, when dilutive.

For the year ended December 31, 1998, 77,042 shares of common stock equivalents
were included in the computation of diluted net earnings (loss) per share,
including 28,877 shares of common stock equivalents based on the assumed
conversion of convertible debentures (see Note 7). Options to purchase 267,638,
61,545 and 197,794 shares of common stock with a weighted average exercise price
of $4.99, $6.32, and $4.19 were outstanding during the years ended December 31,
1999, 1998 and 1997, but were not included in the computation of diluted net
earnings (loss) per share because to do so would have been anti-dilutive.

The company's Board of Directors declared an eleven-for-ten stock split in
August 1999. The record date for the stock split was September 30, 1999 and the
stock split was effected on October 15, 1999. Previously, the company's Board of
Directors declared a three-for-two stock split in February 1998. The record date
for the 1998 stock split was April 15, 1998 and the stock split was effected on
April 30, 1998. The company's share and per share information has been restated
to reflect the stock splits effected in 1999 and 1998.

NOTE 3 - INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

<PAGE>

Prior to October 1997, Venturian Software was a 90 percent owned subsidiary of
Venturian Corp. and prior to December 1996 was an 80 percent owned subsidiary of
Venturian Corp. Effective October 1, 1997, Venturian Corp. entered into a joint
venture agreement with Venturian Software, Atio Corporation PTY Ltd. (Atio PTY)
of South Africa, Atio Corporation International, Inc. (Atio International) and
Venturian Software's minority shareholder and president, whereby Atio
International acquired a 50 percent interest in Venturian Software through
funding provided by Atio PTY.

Pursuant to the terms of the joint venture agreement, Venturian Software issued
2,000,000 shares of its common stock to Atio International in exchange for
$3,500,000 to be paid in installments and a royalty-free license with respect to
Atio International's AtioCall products. As a result of this transaction,
Venturian Corp. owned 45 percent, Atio International owned 50 percent and
Venturian Software's former president owned 5 percent of Venturian Software
effective October 1, 1997. Venturian Software changed its name to Atio
Corporation USA, Inc. (Atio USA) upon completion of the transaction. As of
October 1, 1997, Venturian Corp. began accounting for its investment in Atio USA
under the equity method of accounting. Venturian Corp.'s results of operations
include all of the results of Atio USA for the nine months ended September 30,
1997 (see Note 14). Venturian Corp. recorded $1,040,000 of equity in losses of
unconsolidated subsidiary for its share of Atio USA's losses for the year ended
December 31, 1998 and $644,000 for the three months ended December 31, 1997.
Venturian Corp.'s investment in Atio USA was fully written off during 1998. Due
to additional financing provided by Atio International and the conversion of
debt to stock, Venturian's investment in Atio USA was reduced to 27 percent
during 1999.

Venturian Corp. also entered into a shareholders agreement in connection with
the joint venture agreement which, among other things, sets forth certain
matters with respect to the governance of Atio USA and various terms in
connection with additional capital call requirements. The principal terms of the
shareholders agreement terminate if a registration statement filed by Atio USA
in connection with the sale of its common shares is declared effective by the
Securities and Exchange Commission and the sale of common shares is consummated.

In December 1999, the company entered into an agreement and plan of merger
whereby Atio USA will merge with and into CE Software Holdings, Inc.
(Nasdaq:CESH). At the time of the merger, CESH's operating subsidiary, CE
Software, Inc., will be spun off through the distribution of all of its stock to
CESH's shareholders. CESH will remain a public company and its shares are
expected to initially be traded on the Nasdaq SmallCap Market. The terms of the
merger agreement provide for Venturian to receive 236,842 shares of CESH in
exchange for its existing interest in Atio USA. The agreement also requires
Venturian, either by exchange of indebtedness, by cash or by a combination, to
purchase 148,900 shares of CESH common stock for $964,872, at the date of
merger, or it will forfeit a similar amount of shares. Upon completion of the
merger, Venturian will own approximately 385,000 shares of CESH. The shares will
be unregistered and subject to customary trading restrictions.

In connection with the merger agreement, the company advanced Atio USA $150,000
as a loan to provide for short-term funding requirements. The loan is
collateralized by an interest in the assets of Atio USA and will be offset
against the $964,872 owed by Venturian upon closing of the merger agreement.

The following is summarized financial information of Atio USA as of December 31,
1998 and for the year then ended and as of December 31, 1997 and for the three
months then ended (in thousands):

<PAGE>

December 31,
1998 1997
------ ------
Current assets........................ $ 333 $ 450
Noncurrent assets..................... 452 228
Current liabilities................... 2,639 446
Non-current liabilities............... 500 500
Shareholders' deficit................. (2,354) (268)
Revenues.............................. 697 154 (unaudited)
Net loss ............................. (4,169) (1,447)(unaudited)

NOTE 4 - RENTAL REAL ESTATE

The company's rental real estate consists of a 386,000 square foot multi-tenant
building with twenty-seven tenants presently occupying space. Minimum rental
commitments receivable in future years under non-cancelable long-term leases are
$1,097,000 in 2000, $908,000 in 2001, and $661,000 in 2002 and $315,000 in 2003.

In 1996, the Minnesota Pollution Control Agency granted approval of the Phase II
Investigation and Review of Remedial Alternatives Report and the Response Action
Plan and Remedial Design Report submitted by a consultant retained by the
company in connection with the environmental remediation of the property.
Remediation recommended by the consultant at the property commenced in 1996 and
was completed in 1997 with the exception of a groundwater monitoring program,
which began in December 1996. In 1998, the MPCA issued a Certificate of
Completion for the property.

NOTE 5 - LINES OF CREDIT

Napco has an agreement with a bank to provide a $4,000,000 line of credit for
international transactions and cash advances. The agreement provides that cash
or letter of credit advances be collateralized by the cash surrender value of
certain of the company's life insurance policies, certain accounts receivable
and inventory, or a restricted cash balance.

Advances on the $4,000,000 line of credit bear interest at the bank's base rate.
At December 31, 1999, approximately $2,782,000 was available for cash and letter
of credit advances pursuant to the agreement. There were no cash advances
outstanding against this line of credit at December 31, 1999 and 1998 and
approximately $1,218,000 and $729,000 in letter of credit advances were
outstanding, respectively.

Napco has additional lines of credit available for international transactions
such as letters of credit and bid, performance and advance payment guarantees on
a transaction basis for which restricted cash balances are required. Letters of
credit issued by financial institutions, which were collateralized by a
restricted cash balance, totaled $545,000 and $790,000 as of December 31, 1999
and 1998.

NOTE 6 - LONG-TERM DEBT

Long-term debt consisted of the following at December 31 (in thousands):

1999 1998
---- ----

Rental real estate mortgage (a)................... $3,327 $3,350

Convertible debenture (b)......................... 504 504

Mortgage payable (c).............................. 188 212

Other (d)......................................... 390 569
------ ------
4,409 4,635

Less current maturities........................... 230 211
------ ------

$4,179 $4,424
====== ======

<PAGE>

(a) The obligation is collateralized by rental real estate (see Note 4) and is
due in monthly installments, including interest at 8.53 percent per annum,
through October 2007, with the remaining balance due at that time. In addition
to the monthly installments of principal and interest, the company is also
required to escrow amounts for the payment of property taxes and certain other
operating expenses.

(b) The obligation is an 11 percent convertible debenture due July 2002 (see
Note 7) with interest payable quarterly.

(c) The mortgage is collateralized by certain property and is payable in monthly
installments, including interest at the rate of 9.0 percent per annum, through
December 2013.

(d) These obligations are collateralized by certain equipment and are payable in
monthly installments, including interest at floating rates ranging from 1.0 to
2.0 percent over the prime rate.

Aggregate future maturities of long-term debt are $230,000 in 2000, $163,000 in
2001, $773,000 in 2002, $33,000 in 2003, $35,000 in 2004 and $3,175,000
thereafter.

Based upon the borrowing rates currently available to the company for loans with
similar terms and average maturities, the carrying amount of long-term debt
approximates fair market value at December 31, 1999 and 1998.

NOTE 7 - CONVERTIBLE DEBENTURE AND SALE OF COMMON STOCK

During 1998, the company entered into a privately negotiated transaction with
Quarterdeck Public Equities, LLC (Quarterdeck) for the sale of 69,305 shares of
Venturian Corp. common stock at $6.36 per share and the issuance of a $504,000,
11 percent convertible debenture. The debenture is convertible at $7.27 per
share into 69,305 shares of common stock, at the option of Quarterdeck, during
the period from November 28, 1998 to July 30, 2001. After July 30, 2001, the
company, at its option, may require conversion of the debenture into common
stock. Upon conversion of the debenture, Quarterdeck would own approximately 13
percent of Venturian common stock. Upon written request of Quarterdeck, the
company has agreed to nominate the president of Quarterdeck to the Board of
Directors of the company at the next annual meeting of shareholders of the
company. In addition, Gary B. Rappaport, Chairman of the Board of the company,
has entered into a separate voting agreement whereby he has agreed to vote his
shares in support of the Quarterdeck nominee. Quarterdeck has notified the
company that it intends to request that the company nominate Quarterdeck's
president to the Board of Directors at the annual meeting of shareholders of the
company in 2000. Quarterdeck has agreed that, except for the conversion of the
debenture, for a period of two years neither it nor any of its members or
affiliates will purchase any capital stock or other securities or rights to
purchase capital stock or other securities of the company without the company's
prior written consent, provided, however, that Quarterdeck may purchase shares
of the company's common stock in the open market with a purchase price not in
excess of $55,000 in the aggregate; and provided, further, that Quarterdeck may
purchase in the open market shares of capital stock or other securities or
rights to the extent necessary to maintain its percentage interest in the
company. In October 1998, the company authorized Quarterdeck to acquire up to an
additional 38,500 shares of Venturian Corp. common stock in the open market. As
of December 31, 1999, Quarterdeck and its affiliates have purchased 41,800
shares of Venturian Corp. common stock. Quarterdeck Public Equities, LLC is an
affiliate of Quarterdeck Investment Partners, Inc., an investment banking firm
focusing in the global aerospace and defense markets.

NOTE 8 - DEFERRED COMPENSATION

The company has deferred compensation agreements with certain present and former
key employees. The agreements provide for monthly retirement benefit payments
for 15 years following an employee's retirement. The company has purchased life
insurance policies to fund the deferred compensation agreements. The company had
recorded $1,378,000 and $1,569,000 at December 31, 1999 and 1998 for its
liability related to

<PAGE>

these agreements. Interest expense related to the deferred compensation
agreements was $172,000, $198,000 and $205,000 for the years ended December 31,
1999, 1998 and 1997.

NOTE 9 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The company sponsors an unfunded defined benefit postretirement plan that covers
a limited number of former employees and dependents of former employees who
retired prior to February 1988. The plan provides for medical and dental
benefits as well as limited life insurance benefits. At December 31, 1999 and
1998, the company had recorded $565,000 and $574,000 for the accumulated
postretirement benefit obligation under this plan.

Net interest cost on the accumulated postretirement benefit obligation was
$30,000, $32,000 and $32,000 for the years ended December 31, 1999, 1998 and
1997.

For measurement purposes, a 4 percent annual rate of increase in the per capita
cost of covered medical and dental benefits was assumed for all years. The
health care cost trend rate assumption has an effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rate by one percentage
point in each year would increase the accumulated postretirement benefit
obligation at December 31, 1999 by $36,000. The effect of a one percent increase
in the health care cost trend rate would not have a significant effect on
interest cost included in the net periodic postretirement benefit cost for the
years ended December 31, 1999, 1998 and 1997.

The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6 percent.

NOTE 10 - PENSION AND PROFIT SHARING PLANS

The company has retirement plans, in the form of pension or profit sharing plans
that are provided for substantially all employees of the company. No
contributions to the profit sharing plan were made for the years ended December
31, 1999, 1998 or 1997.

Benefits under the defined benefit pension plan are provided pursuant to the
terms of a collective bargaining agreement covering approximately one-third of
the company's employees. The agreement expires in August 2001. Benefits under
the plan are based on years of service. The company's funding policy for the
defined benefit plan has been to contribute such amounts as necessary, computed
on an actuarial basis, to provide the plan with assets sufficient to meet the
benefit payment requirements. Plan assets are invested in fixed income
securities.

Assumptions used to calculate costs and actuarial present values are reviewed
regularly by the company and its independent actuaries. A 7 percent discount
rate and a 7.5 percent long-term rate of return on investments were used in the
calculation in 1999, 1998 and 1997. An increase in compensation levels was not
applicable. The funded status of the plan follows (in thousands):

Years ended December 31,
-----------------------------
1999 1998 1997
---- ---- ----

Fair value of plan assets..................... $820 $904 $907
Benefit obligation............................ 804 851 834
----- ----- -----
Excess plan assets............................ $ 16 $ 53 $ 73
===== ===== =====

Pension liability............................. $ (42) $ (60) $ (60)
===== ===== =====

NOTE 11 - COMMITMENTS AND CONTINGENCIES

At December 31, 1999, the company had performance and advance payment guarantees
outstanding on various sales contracts totaling $310,000. These guarantees were
backed by insurance bonds, which do not require cash collateral.

<PAGE>

The company has guaranteed certain office lease commitments of Atio USA totaling
$60,000 as of December 31, 1999.

The company is subject to various legal proceedings in the normal course of
business. Management believes the outcome of these proceedings will not have a
material adverse effect on the company's financial position or results of
operations.

In November 1999, the company agreed to a litigation settlement related to
broker fees claimed in connection with the Atio USA Corporation, Inc. joint
venture agreement (see Note 3), and incurred settlement costs totaling $284,000.

NOTE 12 - EMPLOYEE STOCK PLANS

The company has a stock option plan that provides participating employees the
right to purchase common stock of the company through incentive and
non-qualified stock options. Shares available for grant under this stock option
plan expired in 1994. At December 31, 1999, options to purchase 48,180 shares
were outstanding under this plan, all of which were exercisable.

In 1995, the company adopted and the shareholders approved a new stock option
plan, which provides for the granting of options to purchase shares of the
company's common stock. In May 1996, the shareholders approved an amendment to
the plan to allow for an aggregate of 412,500 shares of the company's stock to
be granted under the plan. At December 31, 1999, 185,595 shares were available
for grant under this plan and options to purchase 226,905 shares were
outstanding, of which 190,295 were exercisable.

Under both plans, incentive stock options may not be granted at a purchase price
less than the fair market value of the common shares on the date of the grant
(or, for an option granted to a person holding more than 10 percent of the
company's voting stock, at less than 110 percent of fair market value). The term
of each option under both plans is fixed at the date of grant and may not exceed
ten years from the date the option is granted (except that an incentive stock
option granted to a person holding more than 10 percent of the company's voting
stock may be exercisable only for five years). Options may be made exercisable
in whole or in installments. During 1998, 42,460 incentive stock options were
granted to a holder of more than 10 percent of the company's voting stock. No
other options have been granted to a person holding more than 10 percent of the
company's voting stock in the last three years. No compensation expense has been
recorded by the company in the previous three years.

A summary of the company's stock option transactions is as follows:

<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year....... 241,175 $ 4.94 217,305 $ 4.43 204,848 $ 4.09
Granted................................ 36,000 5.42 45,760 6.95 51,150 5.92
Exercised.............................. (2,090) 3.74 (16,940) 4.22 (1,650) 3.48
Forfeited.............................. -- -- (4,950) 3.48 (20,543) 4.07
Expirations............................ -- -- -- -- (16,500) 5.50
------- ------- -------

Outstanding at end of year............. 275,085 $ 5.01 241,175 $ 4.94 217,305 $ 4.43
======= ======= =======

Options exercisable at end of year..... 238,475 $ 5.06 195,901 $ 5.05 139,920 $ 4.35
======= ======= =======

Weighted-average fair value of
options granted during the year $ 2.95 $ 3.41 $ 4.13
</TABLE>

<PAGE>

The following information applies to stock options that are outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Exercise Number Average Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- --------------- ----------- ---------------- ----- ----------- -----
<S> > <C> <C> <C> <C> <C>
$3.03 to $ 3.49 93,995 7.00 years $3.47 80,762 $3.48
$4.85 to $ 7.06 181,090 5.65 years 5.81 157,713 5.87
------- -------
275,085 238,475
======= =======
</TABLE>

The company's pro forma net earnings (loss) and net earnings (loss) per share
had the fair value based method been used, are set forth below. These effects
may not be representative of the future effects of applying this method.

(In thousands, except per share data) Years ended December 31,
----------------------------
1999 1998 1997
------- ------- ------

Net earnings (loss) As reported...... $(1,079) $ 1,831 $(2,325)
Pro forma........ (1,278) 1,672 (2,475)

Net earnings (loss) per
share - basic As reported...... $ (.81) $ 1.43 $(1.87)
Pro forma........ (.96) 1.30 (1.99)

Net earnings (loss) per
share - diluted As reported...... $ (.81) $ 1.35 $(1.87)
Pro forma........ (.96) 1.23 (1.99)

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used in 1999, 1998 and 1997: expected volatility of 63.00, 59.00 and
67.00 percent; risk-free interest rates of 5.29, 5.58 and 5.98 percent; an
expected life of five, five and seven years; and a dividend yield of 0.93
percent in 1999, and none in 1998 and 1997.

The company has a Key Employee Stock Purchase Plan for its officers and key
employees under which the company provides loans for the employees to purchase
shares of Venturian Corp. common stock on the open market. The company has
agreed to repurchase the shares covered by the plan at the purchase price,
adjusted for a proportionate increase or decrease in the book value per share
since the date of purchase. The company has also agreed to purchase the covered
shares at the book value per share at the normal retirement age of the plan
participant. The plan authorizes the purchase of 165,000 shares of common stock.
Of the authorized shares, 93,002 shares have been purchased through December 31,
1999. The company's obligation to repurchase the outstanding shares under the
plan at December 31, 1999 was approximately $220,000.

NOTE 13 - INCOME TAXES

The components of income tax expense were as follows (in thousands):

Years ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Current expense ...................... $ -- $ 63 $ --
Deferred expense...................... -- -- --
------ ------ ------
$ -- $ 63 $ --
====== ====== ======

<PAGE>

Income tax expense (benefit) for each of the last three years differed from the
expected amount computed by applying the statutory federal income tax rate to
earnings (loss) before income taxes and equity in losses of unconsolidated
subsidiary due to the following (in thousands):

Years ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
Expected income tax expense (benefit)
at statutory rate............................ $ (367) $ 998 $ (572)
Difference in tax resulting from:
Allocation of net deferred tax
asset to deconsolidated subsidiary (a).. -- -- 424
Change in valuation allowance (b).......... 426 (771) 206
Effect of cash surrender value............. (60) (120) (60)
Other...................................... 1 (44) 2
------ ------ ------
Actual income tax expense...................... $ -- $ 63 $ --
====== ====== ======
Actual income tax expense
percentage................................... N/A 2.2% N/A

(a) Approximately $1,222,000 of net operating losses were allocated to Atio USA
due to Atio USA no longer being a member of the company's consolidated tax
return as a result of the decrease in the company's ownership of Atio USA as of
October 1, 1997 (see Note 3). Approximately $1,120,000 of these net operating
losses were incurred during 1997.

(b) The change in the valuation allowance excludes the effect of the investment
in unconsolidated subsidiary.

Deferred tax assets and liabilities are recorded based on the differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred tax expense (benefit) is the result of
changes in deferred tax assets and liabilities. Deferred income tax assets and
liabilities were as follows at December 31 (in thousands):

1999 1998
---- ----
Deferred tax assets:
Deferred compensation and
retirement benefits............................ $ 704 $ 777
Inventory........................................ 941 571
Alternative minimum tax credit carryforwards..... 142 186
Net operating loss carryforwards................. 597 361
Investment in unconsolidated subsidiary.......... 601 601
Other............................................ 396 315
------- -------
3,381 2,811
Valuation allowance.............................. (3,169) (2,743)
------- -------
212 68
Deferred tax liabilities:
Gain on demutualization.......................... (146) --
Depreciation..................................... (66) (68)
------- -------
$ -- $ --
======= =======

At December 31, 1999 the company had approximately $1,600,000 of federal net
operating loss carryforwards and $2,000,000 of state net operating loss
carryforwards, which expire through the year 2014.

NOTE 14 - SEGMENT INFORMATION

The company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," effective January 1, 1998. SFAS No. 131 requires the
company to disclose financial and other information about its business segments,
their products and services, geographic areas, sales, profits, assets and other
information.

<PAGE>

During 1999 and 1998, the company had one reportable segment: Napco
defense-related products. Napco manufactures and supplies a wide variety of
defense-related products to governments and commercial customers around the
world. A substantial portion of Napco's sales are replacement parts for U.S.
made military and tracked vehicles. During 1997, the company had two reportable
segments: Napco defense-related products and Atio software products. Atio
provides multimedia call center management integration software under the trade
name Cybercall(R) to the e-commerce market.

Segment information for the company is as follows (in thousands):

Year ended December 31, 1997 Napco Atio
Defense-related Software
Products Products Total
-------- -------- -----
<S> <C> <C> <C>
Revenues from external customers................ $ 26,849 $ 730 $ 27,579
Depreciation and amortization................... 317 27 344
Segment profit (loss)........................... 251 (1,775) (1,524)
Segment assets.................................. 16,006 -- 16,006
Expenditures for long-lived assets.............. 981 134 1,115

Reconciliation to Consolidated Amounts Years ended December 31,
----------------------------------------
1999 1998 1997
---- ---- ----
Total depreciation and amortization
for reportable segments....................... $ 393 $ 369 $ 344
Unallocated amount
for corporate headquarters.................... 189 201 192
-------- -------- --------
Total consolidated depreciation
and amortization.............................. $ 582 $ 570 $ 536
======== ======== ========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Profit or Loss
<S> <C> <C> <C>
Total profit or loss for reportable segments.... $ (915) 3,592 $ (1,524)
Unallocated amounts
Corporate headquarters........................ (782) (839) (455)
Rental income, net............................ 612 644 465
Gain from demutualization..................... 817 -- --
Gain from life insurance proceeds............. - 218 --
Interest, net................................. (533) (710) (490)
Gain (loss) on sale of equipment.............. -- -- 306
Other......................................... (278) 29 17
-------- -------- --------
Consolidated earnings (loss) before
income taxes and equity in losses
of unconsolidated subsidiary.................. $ (1,079) $ 2,934 $ (1,681)
======== ======= ========

Assets
Total assets for reportable segments............ $17,590 $ 16,720 $ 16,006
Corporate headquarters and rental property...... 5,256 5,760 7,882
-------- -------- --------
Total consolidated assets..................... $ 22,846 $ 22,480 $ 23,888
======== ======== ========
</TABLE>

Geographic Information

Napco's sales by geographic region for the last three years were as follows (in
thousands):

<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States
and Canada................................ $ 5,539 $ 20,036 $ 14,264
Europe.......................................... 6,275 5,921 4,595
Far East........................................ 1,917 10,778 3,974
Mediterranean and
Middle East............................... 6,987 3,904 1,989
Latin America................................... 1,326 1,044 1,910
Africa.......................................... 420 30 117
-------- -------- --------
$ 22,464 $ 41,713 $ 26,849
======== ======== ========
</TABLE>

Sales are attributed to countries based on the location of the customer. All
long-lived assets are located in the United States.

Major Customers

During 1999, sales to customers in one foreign country accounted for 14 percent
of Napco's sales. During 1998, sales to customers in one other foreign country
accounted for 20 percent of Napco's sales. During 1997, no sales to customers in
foreign countries accounted for more than 10 percent of Napco's sales. In
general, the company considers Napco's sales to customers in specific countries
to be more relevant than sales to individual foreign customers because the
primary risks with respect to its export sales relate to political decisions by
the U.S. government, which could prevent future sales to foreign nations, or
monetary, military or economic conditions in certain countries that may affect
sales in such countries.

Napco's sales in the United States were $5,319,000, $19,821,000 and $13,952,000
in 1999, 1998 and 1997 and consisted primarily of sales to various U.S.
government agencies and to a large number of commercial customers. During 1998
and 1997, sales to U.S. government agencies accounted for 35 and 10 percent of
Napco sales. During 1997, sales to one other customer in the United States
accounted for 23 percent of Napco sales. However, historically there has not
been a reliance on any one customer.

<PAGE>

NOTE 15 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Financial Accounting Standard Board Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" is effective for fiscal years beginning
after June 15, 2000, as amended by SFAS 137. SFAS 133 requires entities to
recognize all derivatives in their financial statements as either assets or
liabilities measured at fair value. The Statement also specifies new methods of
accounting for derivatives used in risk management strategies (hedging
activities), prescribes the items and transactions that may be hedged, and
specifies detailed criteria required to qualify for hedge accounting. The
adoption of this standard is not expected to have a material affect on the
consolidated financial statements of the company.

NOTE 16 - SUBSEQUENT EVENTS

On February 10, 2000, the Board authorized the repurchase up to five percent of
the company's then outstanding shares of common stock.

On February 25, 2000, the merger agreement (see Note 3) was amended to extend
the closing date from February 29, 2000 to April 30, 2000.

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
Venturian Corp.

We have audited the accompanying consolidated balance sheets of
Venturian Corp. (a Minnesota corporation) and Subsidiaries as of December 31,
1999 and 1998 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with audit standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. 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 our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Venturian Corp. and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota
February 4, 2000 (except for Note 16,
as to which the date is February 25, 2000)

<PAGE>

VENTURIAN CORP. AND SUBSIDIARIES
Quarterly Financial Data
(In thousands, except per share data)
(Unaudited)

<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
1999(a) 1998(a) 1999(a) 1998(a) 1999(a) 1998(a) 1999 1998(a)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ...................... $ 7,074 $ 7,396 $ 5,664 $12,679 $ 5,164 $12,209 $ 4,562 $ 9,429

Gross profit ................... 2,076 2,364 1,411 3,424 1,458 3,544 1,004 2,625

Net earnings (loss) ........... 18 (188) (377) 482 440 1,016 (1,160) 521

Earnings (loss) per share
Basic ........................ $ .01 $ (.15) $ (.28) $ .39 $ .33 $ .77 $ (.87) $ .39
Diluted ...................... .01 (.15) (.28) .37 .32 .72 (.87) .36
</TABLE>

Stock prices are based upon the high and low sales prices of Venturian Corp.
(VENT) as quoted on the NASDAQ Stock Market's National Market. Market quotations
reflect interdealer prices, without retail mark-up, mark-down or commission and
may not necessarily reflect actual market transactions.

(a) Net earnings (loss) per share and stock price data have been restated to
reflect the eleven-for-ten stock split that was effective October 15, 1999.

<PAGE>

VENTURIAN CORP. AND SUBSIDIARIES
Five-Year Financial Summary
(In thousands, except per share data)

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales ....................................... $ 22,464 $ 41,713 $ 27,579 $ 28,398 $ 24,845

Earnings (loss) from continuing
operations before equity in losses of
unconsolidated subsidiary
and discontinued operations ................... (1,079) 2,871 (1,681) 84 937

Equity in losses of unconsolidated subsidiary ... -- (1,040) (644) -- --

Earnings (loss) from continuing operations
before discontinued operations ................ (1,079) 1,831 (2,325) 84 937

Discontinued operations ......................... -- -- -- -- (1,095)

Net earnings (loss) ............................. ($ 1,079) $ 1,831 ($ 2,325) $ 84 ($ 158)

PER SHARE DATA

Net earnings (loss) per share - Basic
Earnings (loss) from continuing
operations before discontinued operations ... $ (.81) $ 1.43 $ (1.87) $ .06 $ .75

Discontinued operations ....................... -- -- -- -- (.88)

Net earnings (loss) per share - Basic ........... (.81) 1.43 (1.87) .06 (.13)

Net earnings (loss) per share - Diluted
Earnings (loss) from continuing
operations before discontinued operations ... (.81) 1.35 (1.87) .06 .75

Discontinued operations ....................... -- -- -- -- (.88)

Net earnings (loss) per share - Diluted ......... (.81) 1.35 (1.87) .06 (.13)

Year end stock price ............................ $ 6.00 $ 7.05 $ 5.61 $ 4.93 $ 3.03

Shareholders of record at year end .............. 426 446 501 537 724

FINANCIAL POSITION

Working capital ................................. $ 7,438 $ 9,009 $ 4,951 $ 4,984 $ 6,181
Current ratio ................................... 2.2 3.2 1.6 2.2 2.0
Total assets .................................... 22,846 $ 22,480 $ 23,888 $ 18,053 $ 20,316
Long-term liabilities at year end ............... 6,140 6,604 6,233 3,442 3,755
</TABLE>

Exhibit (21)

Venturian Corp. and Subsidiaries

SUBSIDIARIES OF THE REGISTRANT

December 31, 1999

The Company's subsidiaries are:

State or Other
Jurisdiction in which
Name Incorporated or Organized
---- -------------------------

Napco International Inc. Minnesota

Hopkins Tech Center LLC Minnesota

Napco International Foreign Sales Corporation U.S. Virgin Islands

Atio Corporation USA, Inc. Minnesota

Exhibit 23.1

Venturian Corp. and Subsidiaries

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our reports dated February 4, 2000 (except for Note 16, as to
which the date is February 25, 2000) accompanying the consolidated financial
statements and schedule incorporated by reference or included in the Annual
Report of Venturian Corp. on Form 10-K for the year ended December 31, 1999. We
hereby consent to the incorporation by reference of said reports in the
Registration Statements of Venturian Corp. on Forms S-8 (File No. 2-93660,
effective October 29, 1984 and File No. 333-09223, effective August 30, 1996).

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota
March 6, 2000

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,249
<SECURITIES> 402
<RECEIVABLES> 4,643
<ALLOWANCES> 200
<INVENTORY> 6,736
<CURRENT-ASSETS> 13,617
<PP&E> 8,394
<DEPRECIATION> 6,021
<TOTAL-ASSETS> 22,846
<CURRENT-LIABILITIES> 6,179
<BONDS> 0
0
0
<COMMON> 1,341
<OTHER-SE> 9,186
<TOTAL-LIABILITY-AND-EQUITY> 22,846
<SALES> 22,464
<TOTAL-REVENUES> 22,464
<CGS> 16,515
<TOTAL-COSTS> 16,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 594
<INCOME-PRETAX> (1,079)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,079)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,079)
<EPS-BASIC> (.81)
<EPS-DILUTED> (.81)

</TABLE>