U.S. SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, DC 20549

                              FORM 10-KSB
(Mark One)

[X]       ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934 for the fiscal year ended December 31, 1998.

[  ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934 FOR THE TRANSITION PERIOD FROM   _______   TO _______

                         Commission file number 0-5887

                                RTI INC.
      (Exact name of small business issuer as specified in its charter)

                           NEW YORK                  11-2163152
      (State or other jurisdiction of          (I.R.S. Employer incorporation or
        organization)                           Identification No.)

              P.O. Box 3048, 301 Antone, Sunland Park, New Mexico 88063
                     (Address of principal executive offices) (Zip Code)

                                      (505) 589-5431
                   (Issuer's telephone number, including area code)

            Securities registered under Section 12(b) of the Exchange Act: None

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

                              Common Stock, $.08 par value
                                     (Title of Class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section l3 or l5(d) of the  Exchange  Act during the past 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 [ ]

Check is there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to the Form 10-KSB. [X]

         State issuer's revenues for its most recent fiscal year - $2,929,535

<PAGE>





         State the  aggregate  value of the voting stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such  stock,  as of a specific  date within the past 60
days.

         Approximately $821,694.66 based on the published sale price ($8/16 )
on The NASDAQ Small-Cap Market on March 25, 1999

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of
 March 25, 1999 - 1,611,166

Documents Incorporated by Reference:  Exhibits 3.1, 3.2, 4.1

Transitional Small Business Disclosure Form    Yes [ ]     No  [x]





<PAGE>




                                                 PART I


Item 1.  Description of Business

General

         RTI Inc., a New York  corporation  ("RTI"),  was incorporated in August
1968.   Since  February  24,  1997,  RTI,  through  its  wholly  owned  Delaware
subsidiary,  Refrigeration Technology Inc. ("RefTech"; and collectively with RTI
the  "Company"),  has been engaged in the  manufacture  and sale of  evaporative
coolers,  commercial heat exchange modules and high-efficiency air conditioners.
Prior to August 8, 1996,  the Company was  engaged in the  contract  irradiation
business and operated two irradiation  business facilities in New Jersey and one
irradiation facility in North Carolina.

         During 1998, the company  engaged in the production and sale of each of
its air  conditioning  and  cooling  products  (See  "Industry  Background"  and
"Company Products").  This included significant  dedication of resources in 1998
to 1) product development for the Company's new "AC2" central air conditioner,
including the rework , redesign process on the field ,and retrofitted process 2)
the  development  and  support  of  an  air  conditioner  distribution  network,
currently  limited to the southern  states of the US. The AC2 utilizes  patented
evaporative   technologies   to  cool  homes  and  small   businesses  with  air
conditioning  with  reduced  electricity  usage when  compared to  standard  air
conditioners.  The AC2 is assembled in the Company's Westway,  Texas factory. In
1997,  this factory was  purchased,  equipped for  producing the AC2, and a work
force  trained to  manufacture  the AC2.In 1998 ,this  factory main focus was to
rework and reprocess the AC2 and not a significant new units ware produced.

         In  preparation  for the  production  and sale of the AC2,  the Company
applied for and received "ETL" safety  certification,  and an energy  efficiency
rating (EER) rating in late July,  1997.  The EER of "15"  received from the Air
Conditioning and  Refrigeration  Institute (ARI) exceeded (per ARI standard 210)
all  previous  ratings  awarded by ARI, and  confirmed  the  anticipated  energy
efficiency of the AC2  prototype.  Although these  certifications  were received
late in the air conditioning season, a moderate level of AC2 sales were achieved
for the year.  However,  1998 was a product  development  and redesign year, and
approximately  50% of the units delivered in 1997 ware replaced in 1998 with the
newer 1998 units , reflecting  product  refinements and enhancements.  The older
production  year units are being returned to the factory to be retrofitted  with
the 1998  product  refinements  and  enhancements.  As March  26,1999  still are
missing about 385 units to replace and 1200 units already installed that need to
be  retrofitted.  The company has establish an accrued for its estimates cost of
upgraded and warranty expenses. .

Sale of Irradiation Business and Acquisition of QAI

         The  Company  in  1996  ceased  its  contract   irradiation   business,
consummating a transaction with SteriGenics International (SteriGenics),  as has
been reported previously.





<PAGE>



        On  February  24,  1997   ("Closing"),   the  Company   consummated  the
transactions  ("QAI  Transaction")  contemplated by the agreement  ("Acquisition
Agreement"), among (i) RefTech, (ii) Quality Air, Inc., a New Mexico corporation
(QAI"), and (iii) Rick E. Bacchus, Rockney D. Bacchus, Ronald A. Bacchus, Margie
J. Bacchus,  Phillis Bacchus and Opal Simmons, the officers and principal owners
of QAI, pursuant to which, among other things,as has been reported previously,.

         During 1997, the Company's  officers were Theo W. Muller,  Chairman and
CEO, Rick E. Bacchus, President,  Rockney D. Bacchus, Vice President, and Ronald
A.  Bacchus,  Vice  President.  Jim Caylor was elected  Controller  in 1997.  On
January  26,  1998,  Theo W.  Muller  the  Chairman  and CEO  resigned  from all
positions with RTI.  Also,  the three outside  directors  Sanders  Davies,  C.W.
McMillan, and George M. Whitmore, Jr., resigned on January 28, 1998, January 29,
1998 and January 31, 1998,  respectively.  The Company  acquired the business of
QAI in February 1997,  which changed the business  emphasis of the Company,  and
disagreements   occurred  between  the  operating  management  and  the  outside
directors  as to the  direction of the Company and the manner in which it should
be financed.

         On January 31, 1998,  Dr. Lanny  Snodgrass  was elected as director for
the Company to fill the vacancy created by the resignation of one of the outside
directors. Dr. Snodgrass is a practicing psychiatrist and psychologist currently
on the staff of VA Puget Sound Health Care System,  Faculty of the University of
Washington School of Medicine, Department of Behavioral Sciences.

         On  November  15 of 1998  Jim  Caylor  resigned  from his  position  as
Controller,  Jorge A. Felix was elected on a temporary basis; he has worked as a
accountant for RTI since September of 1997.

         The  Acquisition  Agreement  provides  that,  during the period through
December 31, 2001, the QAI Principals, as a group, have the non-assignable right
to nominate three of the seven  directors  constituting  the Company's  Board of
Directors. (See Item 9 - "Directors,  Executive Officers,  Promoters and Control
Persons;  Compliance with Section 16(a) of the Exchange  Act").  RefTech (i) has
agreed to lend up to an aggregate of $240,000 to the QAI Principals, and (ii)has
the right to purchase from BII certain equipment and vehicles  previously leased
to QAI for an amount equal to their fair market  value.  (See Item 12 - "Certain
Relationships and Related Transactions"). In 1997, the QAI Principals borrowed
collectively  a total of $80,000  from the Company.  In 1998 the QAI  Principals
borrowed  collectively  other  $20,000  from  company to come up with a total of
$100,000 . As December 31 of 1998 company accrued a total of $53,300  payroll
not paid to the  principal  QAI for the fiscal year of 1998.  RefTech is leasing
from BII the  factory  building  in Sunland  Park,  New  Mexico,  which had been
occupied  by QAI and  certain  transportation  equipment  previously  leased  by
Quality Air from BII. (See Item 2 "Description of Properties").



<PAGE>



Industry Background

Evaporative Coolers.  Evaporative coolers operate by forcing air through a water
saturated  filter media.  Although the  technology of cooling by  evaporation is
mature,  the efficiency of an  evaporative  cooler is determined by, among other
things, the thickness and type of filter media used, the amount of air which can
be forced through the filter media and the surface area of the filter media from
which water can be evaporated into the surrounding air.  Evaporative  coolers do
not have  refrigerating  capacity  and are limited in the amount  which they can
cool;  however,  in an arid  climate  evaporative  coolers can be up to 70% more
efficient  than  traditional  refrigerated  air  conditioning.  The  market  for
evaporative  coolers in the United  States,  which is  concentrated  in the arid
areas of the Southwest, is seasonal and totals over $100 million annually. About
75% of the market consists of replacement units,  which are generally  purchased
by the  homeowners  in retail home  centers and  hardware  and  building  supply
stores.  The largest  retailers are serviced  directly by  manufacturers,  while
smaller retailers buy from distributors.  The remainder of the market, generally
serviced  by  distributors,  consists  of HVAC  and  plumbing  contractors,  and
includes new construction, home building and manufactured housing.

         Air to Air Heat Exchangers.  Heat exchangers are utilized primarily for
heat or cool energy  recovery  from  systems  that would  otherwise  discard the
energy. In a heat exchanger, the heat is transferred from one medium (i.e. a gas
mixture, such as air) to another medium, without such mediums coming into direct
contact  with each  other.  Heat  exchangers  are used for among  other  things,
recycling heat generated from an air conditioning  system to other uses within a
building where different temperatures are needed. The market for air to air heat
exchangers  historically  has been  small and  undeveloped  because  of the high
initial  cost  of  the  product.   However,   compliance   with  more  stringent
requirements of indoor air quality  ventilation codes, based on American Society
of  Heating,  Refrigeration  and Air  Conditioning  Engineers,  Inc.  ("ASHRAE")
standard 62- "Ventilation for Acceptable Indoor Air Quality",  has broadened the
market for the product.

         Central  Air  Conditioners.  The market  for  residential  central  air
conditioning  equipment is approximately  5.5 million units per year,  including
both new construction and replacement demand.  Central air conditioning had been
in common use with standard tests used to establish performance, expressed as an
"energy  efficiency  rating" ("EER") or as a "seasonal energy efficiency rating"
("SEER") and are certified by the Air Conditioning and  Refrigeration  Institute
("ARI"), an industry association.  In 1992, the US government mandated a minimum
SEER of 10. (See "Government Regulations").

Company Products

         Evaporative Coolers. The Company's evaporative coolers are manufactured
of  fiberglass  and plastic.  They are circular in design,  and compete  against
square metal  coolers.  The  circular  design  allows for greater  airflow and a
longer  contact  time  with  the  evaporative  media,  which  results  in a more
efficient  cooler,  and delivering  colder air. The fiberglass  housing,  unlike
metal units, will never rust. This allows the Company to offer a 15-year limited
warranty  on  the  Aireze  compared  to  typical  5-year  warranty   offered  by
manufacturers of other coolers.


<PAGE>



         The Aireze cooler has been continuously  marketed since 1978, initially
by BII until  December  1995 and from January 1996 until the Closing by QAI. QAI
and BII had been  marketing  the Aireze Cooler  primarily for new  construction,
including  factory-built  homes, and had less than a 5% share of the evaporative
cooler market.  Sales of Aireze coolers were  approximately  $1.6 million during
the year ended December 31, 1998 compere with $1.8 of 1997. One customer,  Rocky
Mountain Awning,  accounted for  approximately  31% of Aireze sales compere with
27% of 1997, but no other customer exceeded 10% of sales..

         The Company introduced an innovative "thru-the-wall" evaporative cooler
in the fall of 1997,  which  eliminates the necessity of using  precious  window
space and allows the cooler to be mounted at ground  level  compared to roof-top
requirements of competing coolers. The Company intends to vigorously market this
product  in the Salt  Lake  City and  Denver  markets,  along  with  surrounding
markets.  The  thru-the-wall  unit has overcome  restrictions by city and county
covenants  against rooftop  installations.  This simplicity of installation  has
produced  acceptance by distributors and contractors alike. The product promises
to be an attractive addition to the Aireze product line, and patent protection
will be sought. In 1998 sales for this line was approximately for $13,200.00 ,AS
March 26,of 1999 there is a backlog of $35,000 .

         Heat  Exchangers.  The heat exchanger  built by the Company,  primarily
sold  under the E2Pak  trade  name,  are  custom  made and are used to  retrofit
sub-assemblies  used in commercial and industrial large central air conditioning
units to give them improved or specialized  performance such as increased energy
recovery. In 1998, the Company sold the E2Pak to two
specialized  contractors,  including Spec-Air,  Trico Manufacturing. The units
are installed by these contractors  in  large commercial  Carrier,  Trane  and 
McQuay  systems.  (See "Manufacturing").

         The Company believes that the E2Pak has a lower initial cost and higher
performance  than other  similar  heat  exchangers,  but the company has not yet
initiated  any program to expand sales beyond its present  customers,  and there
can be no assurance as to when, if ever,  that the Company will be successful in
expanding such sales. Sales of E2Pak units totaled $0.205 million in 1998.

         Central Air Conditioners. The Company commenced manufacture of the AC2
central air conditioner  for sale beginning in August 1997,  after receiving its
"ETL"  safety  certification  and  its EER  rating  of 15 as  anticipated.  (See
"Government Regulations").

         Unlike  traditional  central air conditioners that have condenser coils
that are air cooled,  the  condenser  coils in the AC2 air  conditioner  utilize
water-cooled  coils.  The  Company  sold a moderate  number of AC2 units in 1997
after  receiving  its safety and energy  efficiency  certifications  late in the
cooling season.  In 1997, the Company  developed a network of distributors  with
presence in the major markets in the states of California,  Arizona, Nevada, New
Mexico, Texas, Oklahoma, Louisiana, Arkansas, North Carolina and South Carolina.
These  distributors also represent the major brand names in the air conditioning
industry.   However,  although  the  Company  was  able  to  attract  the  major
distributors of air conditioners in each market,  there can be no assurance that
the AC2 will gain sufficient  market  acceptance to generate  significant  sales
within a reasonable  period.  Furthermore,  the  suggested  annual  maintenance,
including  cleaning  of the water  medium,  may cause  the  market to  initially
encounter resistance from builders and homeowners.


<PAGE>



         In 1998, the Company sold the AC2 to  distributors,  who market the AC2
to "authorized" dealers. Net sales for AC2 on 1998 was approximately 
$1.1 million.

         The Company  continues to sell the EvapCon,  a central air  conditioner
and related heat pump using unpatented technology (related to the technology in
the AC2).  Sales of these units were not  significant in 1997.Sales for EvaopCon
on 1998 was for $45,014 and the Company will  emphasize this product line during
1999  expecting  sales more than  double of 1998 . As March 26,of 1999 sales and
backlog are for $10,778.86 and $20,800.00 .


Marketing

         The  Company   markets  its   products   mainly   through   independent
manufacturers'  representatives  (REPS). Working through its REPS, during 1997 &
1998,  the  Company  has  enlisted  15  primary  distributors  in  the  key  air
conditioning markets in California,  Arizona, Nevada, Texas, Oklahoma, Arkansas,
Louisiana, North Carolina, and South Carolina. As of March 26, 1999, the Company
employed  8  independent  manufacturers'  representatives  from  the  southeast,
southcentral, and southwest regions of the US.

         The Company offers a limited  warranty on its  manufactured  fiberglass
enclosures,  housings  and  condenser  coils  for 15  years,  on  its  purchased
compressors  for 10 years,  and on the other  components  in its  products for 1
year.


Backlog and Seasonally

         The Market for  evaporative  coolers and, to a slightly  lesser extent,
for air  conditioners  is  highly  seasonal.  Backlogs  for these  products  are
limited,  as they are  shipped  from stock  upon  demand.  When these  units are
shipped out of season to distributors, the industry generally defers the payment
obligations  to the  beginning  of the  following  cooling and air  conditioning
season. As of March 30, 1999, backlogs for the Aireze evaporative cooler and AC2
air conditioner were  approximately  $250,000,  and  $485,000(most ac2 units are
1998 customer  returns than company owe),  respectively  compared to backlogs on
March 21, 1998 of  approximately  $320,000 and $891,000 and 0n March 21, of 1997
$593,000, and $0, respectively,  The E2Pak is less seasonal and, contrary to the
Company's residential  products,  these units are made to order. As of March 30,
1999, the E2Pak backlog was approximately $59,000,  compared to a March 17, 1998
backlog of $69,000.The sales of E2pak for 1997 was for $211,243.83  compare with
$205,898.83 on 1998.

Manufacturing

         The  Company  manufactures  all  fiberglass  components,  such  as  the
enclosures for the AC2, as well as the entire Aireze  evaporative  cooler in its
Ciudad Juarez,  Mexico facility.  Manufacturing  operations  include  fiberglass
spray up molding to manufacture  tops, bases and blower housing,  and fiberglass
weaving to  manufacture  pad frames for the AC2 and  Aireze.  Final  assembly of
purchased motors, pumps and other components, with manufactured molded parts and
complete fiberglass  baskets,  for the Aireze also takes place in this facility.
As of March 30,  1999,  this  facility  had a combined  production  capacity  of
approximately 120 enclosures and/or Aireze evaporative coolers per day.
<PAGE>


         The  thermoforming  and  assembly of louvers  for all of the  Company's
residential products, as well as the manufacturing of the E2Pak, is performed at
the  Company's  Sunland  Park,  New  Mexico  facility.  As of  March  30,  1999,
production  capacity  was  approximately  90  louvers  and 20 feet of E2Pak heat
exchanger plates per shift.

         The  assembly of purchased  motors,  pumps and other  components,  with
manufactured  enclosures and housings, for the AC2 is performed at the Company's
facility in Westway,  Texas. The plant capacity is calculated to be in excess of
200 units per shift.

         The equipment used by the Company for the  manufacture of its E2Pak was
sold by BII to  Spec-Air in 1994,  and leased back to BII  pursuant to a 5 years
lease expiring in October 1999. With the anticipated  completion of the purchase
of BII assets,  this lease is  expected  to be  assigned by BII to the  Company.
Until the Company is  assigned  the lease,  the  Company is making the  payments
thereunder  and BII is permitting the Company to use the leased  equipment.  The
lease required  annual  payments of $48,010 and gives the lessee the first right
to purchase  the  equipment  if  Spec-Air  determines  to sell or  relocate  the
equipment.  In  accordance  with the  lease,  Spec-Air  (which is the  Company's
largest heat exchanger customer) has the first right to purchase all E2Pak units
manufactured  by the  Company,  and the Company is required to deliver a minimum
number of such units to Spec-Air monthly.  The lease also requires the lessee to
pay  Spec-Air a royalty on all E2Pak units sold by the Company to third  parties
and  requires  that any such  sales be at a price at least  25% in excess of the
price that the units are sold to Spec-Air.

         Since 1997 the Company  developed the  facilities to produce the AC2 in
its factories, the Company has not yet completed a season with higher production
volumes needed for commercial success with acceptable profit margins.


Sources of Supply

         The  fiberglass  and resin raw  materials  used in all of the Company's
products,  as well as the copper coils used in the AC2, are  commodity  products
that have historically been readily available from multiple suppliers.  However,
the  Company  relies on a small  number of  manufacturers  for the  motors,  and
compressors,  and has  not had a  long-standing  relationship  with  any of such
manufacturers.  In addition, some of these components have long lead order times
and shortages  could  develop,  which could hamper the ability of the Company to
produce its products,  particularly the AC2, which would have a material adverse
effect on the Company's operations.

Competition

         In the  evaporative  cooler  market,  the  Company  believes  that  the
principal competitive factors are appearance, name recognition, efficiency and
price.  The Company is  attempting to compete on the basis of efficiency , price
and since 1998 quality is priority one. The Company's  competitors include three
metal enclosed  evaporative cooler  manufacturers,  Adobe Air Inc., Champion and
Phoenix Manufacturing, and one plastic enclosed evaporative cooler manufacturer,
Tradewinds.  These competitors  collectively control approximately 95% of the US
evaporative  cooler market and all of who have  significantly  greater financial
manufacturing and marketing  resources than the Company and benefit from greater
market recognition.
<PAGE>

         In the heat exchanger  market,  the Company believes that the principal
competitive  factors are efficiency and price.  However,  as the Company's units
are custom made and sold primarily to a few customers, the Company does not have
reliable information as to the competitive  factors,  which are relevant to this
product line.

         The air  conditioning  industry is highly  competitive  and the Company
believes that the principal  competitive factors in the central air conditioning
market are price, brand recognition and energy efficiency ratings. The Company's
major competitors included Carrier, Rheem/Ruud,  Goodman (Janitrol),  Trane, and
Lennox,  each of which has a 10% or higher  market  share.  All of the Company's
competitors have substantially  greater  manufacturing,  marketing and financial
resources  that the Company and benefit  from  greater  market  recognition.  In
addition,  since the AC2 is technically  distinct from the equipment  offered by
all of the Company's competitors, and there is no assurance that the marketplace
will  accept  the AC2.  The AC2 is water  cooled,  compared  to air  cooling  by
competitors.  While this provides more efficient cooling  capacity,  it requires
the  installation  of a water line.  This requires  additional  training for the
installer.

Patents and Trademarks

         The  Aireze  evaporative  cooler is  patented  under  U.S.  Patent  No.
4,440,000.  The patent on the AC2 air conditioner was issued on November 10,1998
under number  5,832,739 and patents are pending.  Due to changes in  technology,
the Company contemplates that alternative technological solutions may be devised
to  accomplish  the  purpose of its  patents,  but that such  patents  may offer
short-term  protection from third parties.  There can be no assurance that other
parties have not applied for or will not obtain  patents under which the Company
would need to be granted a license or around  which the Company  would be forced
to redesign its products. The Company seeks to protect its intellectual property
rights  through  a  combination  of  trade  secret,   nondisclosure   and  other
contractual  arrangements,  and  patent,  copyright  and  trade  confidentiality
agreements with its employees, consultants, and sales representatives and limits
access to and distribution of its proprietary information; however, there can be
no assurance  that these actions will be adequate to deter  misappropriation  of
the  Company's  proprietary  information,  or that the  Company  will be able to
detect unauthorized use of its intellectual property rights, or that the Company
can afford the high cost required to enforce its intellectual property rights.
Furthermore,  there can be no assurance that a claim that the Company's products
infringe  on the  intellectual  property  rights of others  will not be asserted
successfully against the Company in the future.

Government Regulations

         Various  federal and state statutes,  including the National  Appliance
Energy  Conservation Act of 1987 (which  superseded  certain then existing state
requirements)  and the  Energy  Policy  Act of 1992,  impose  energy  efficiency
standards for certain of the Company's products. Although the Company's products
are believed to meet or exceed such standards to date, stricter standards in the
future could require  substantial  research and development  expense and capital
expenditures  to  maintain  compliance.  If the  Company  is unable to  maintain
compliance  or if it otherwise  determines  that the cost of  compliance  is too
expensive,  it  may be  required  to  discontinue  some  or all of the  affected
products, which could have a material adverse effect on the Company.
<PAGE>

Employees

         As of March 27,  1999 the  Company  had 210  employees  (including  166
persons employed by Industrias RTI), of whom 151 were hourly employees.  None of
the  Company's  employees  are  represented  by a labor  union,  and the Company
believes that its employee relations are good.

Impact of Mexican Operations

         The Company acquired  Industrias QAI (a Mexican  company,  all of whose
operations are conducted in Mexico) on April 14, 1997, changing the name to
Industrias  RTI.  Industrias  RTI, as of March 26, 1999,  had 166  employees and
manufacturers  all fiberglass  enclosures  and housings used by the Company,  as
well as the Company's Aireze  evaporative  cooler, in its Ciudad Juarez,  Mexico
facility.  The ability to have manufacturing  operations in Mexico is a critical
component of the Company's current business plan. (See  "Manufacturing" and Item
2  "Description  of  Properties").  Accordingly  any event  which has a material
adverse  impact on the operations of Industrias RTI should be expected to have a
material adverse impact on the operation of the Company as a whole.

         Industrias   RTI  operates  as  a   "maquiladora"   under  the  Mexican
government's Border Industrialization Program. A maquiladora is a company formed
to  assemble  components  into  finished  products  or to carry  out  particular
labor-intensive manufacturing operations, primarily for export, and are normally
formed to take advantage of the inexpensive labor available in Mexico. Under the
program,  machinery,  equipment,  parts,  raw materials and other components are
allowed to be imported duty-free into Mexico, provided that they are used in the
assemble or manufacture of  semi-finished  or finished  products for export.  In
addition,  under  current US law, the Company does not pay any import  duties on
finished goods shipped to it by Industrias RTI.

         Substantially  all of the cost of operations and operating  expenses of
Industrias RTI, which  constitute an  insignificant  percentage of the Company's
total cost of  operations  and operating  expenses,  are  peso-denominated.  The
Company does not use foreign currency forward contracts to offset exposure to US
dollar/Mexican   peso  exchange  rates  and,  as  a  result,   any   significant
appreciation  of the peso against the dollar would have an adverse effect on the
Company's operating results.  Although there has been significant fluctuation in
the US  dollar/Mexican  peso exchange rate, the Company does not expect the peso
to appreciate significantly against the dollar in the near term.

         Pursuant  to Mexican  Federal  Labor  Law,  employees  who have  served
Industrias RTI for 15 years of more and who  voluntarily  end their  association
with it  (whether  upon  retirement  or  otherwise)  are  entitled to a one-time
seniority  based payment  currently  equal to three months'  salary plus 20 days
salary multiplied by the number of years of service. Industrias RTI, which has
been in existence for less than three years, has not yet established any accrual
for such  liability,  based on its estimate that any such  liability,  given its
historic employee turn-over rates, would not be material.



<PAGE>



Mexican law also required  certain other payments to be made to employees in the
event  of  dismissal  without  serious  cause,   disability  or  death which 
are also not considered material.

         Over the last few  years,  a program  of reform has begun to modify the
nature of the Mexican  government's  role in the Mexican economy.  Nevertheless,
the Mexican  government  continues to exercise  significant  influence over many
aspects  of  the  Mexican  economy.  Accordingly,   Mexican  government  actions
concerning  the  economy  could  have  significant  effects  on  private  sector
entities,  including  Industrias  RTI.  The  Company  cannot  assure that future
Mexican  governmental  actions or future  developments  in the Mexican  economy,
including a continued  slowdown of the  Mexican  economy or  development  of any
social  unrest,  over  which the  Company  has no  control,  will not impair the
operations of Industrias RTI or the  operations  and financial  condition of the
Company.

         Pursuant to temporary  regulations issued by Mexican tax authorities in
March 1995,  the Company's  Mexican assets may be subject to tax, if the Company
does not comply with certain  transfer  pricing  criteria.  The Company believes
that QAI  previously  was in  compliance  with such rules and that the  Company,
since the QAI transaction,  has been in compliance with such rules. In the event
that the Company is found to be in non-compliance  with regulations,  compliance
standards could have a materially adverse effect on the Company.

         In 1993,  Mexico,  the  United  States and  Canada  approved  the North
American Free Trade Agreement ("NAFTA").  NAFTA has, among other things, removed
and will  continue to remove,  over the  transition  period,  most normal custom
duties  imposed on goods traded among the three  countries.  In addition,  NAFTA
will remove or limit many investment restrictions, liberalize trade in services,
provide a specialized  means for settlement of, and remedies for, trade disputes
arising  under  NAFTA,  and will result in new laws and  regulations  to further
these goals. With the enactment of NAFTA, the maquiladora program is expected to
be phased out. It is uncertain what ultimate effect,  if any, that the phase-out
of the  maquiladora  program  will  have  on the  Company's  future  results  of
operations.

Environmental Considerations

         The  Company's  operations  are  subject  to  various  US  and  Mexican
environmental  statutes and regulations.  In addition,  certain of the Company's
operations are subject to US federal,  state and local and Mexican environmental
laws and regulations that impose limitations on the discharge of pollutants into
the air and  water  and  establish  standards  for the  treatment,  storage  and
disposal of solid and hazardous  wastes.  Although the Company believes that its
present operations, and the operations of Industrias RTI, comply in all material
respects  with  existing  laws and  regulations,  compliance  standards  change.
Unforeseen  significant  expenditures required to maintain such compliance could
have  a  material  adverse  effect  on  the  Company's  business  and  financial
condition.

The Company presently is the subject of administrative  proceedings  relating to
environmental  matters  arising  from its  previous  operations  on Rockaway New
Jersey. (See Item 3 - "Legal Proceedings").

<PAGE>

         On Juarez  plant at  Mexico  is the  SEMARNAP  (Mexican  Department  of
Ecology)  which under the Mexican  Ecology  Law is making than  company  realize
studies and  investments for about $10,000 and $25,000  American  dollars during
1999 in order to accomplish with it. Item 2. Description of Properties.

         The following sets forth, as of March 30, 1999,  information concerning
the real property  owned,  leased or managed by the Company in the operations of
the air cooling and air conditioning business:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Location                            Function
Square
                                   Ownership                          Feet

Sunland Park, New Mexico            Corporate Offices, Development,       28,000                    Leased
                                    E2Pak Manufacturing Warehouse

Westway, Texas                      Factory and Warehouse                 54,700                    Owned

Ciudad Juarez, Mexico               Fiberglass cabinet & Aireze           22,800                    Leased
</TABLE>
                                   Manufacturing
The  property in Sunland  Park,  New Mexico,  located on a 1.3 acre  parcel,  is
leased by  RefTech  from  Bacchus  Industries,  Inc.,  pursuant  to a three year
triple-net  lease expiring March 1, 2000, at a monthly rental of $6,500,  with a
right of  RefTech  to extend the lease for an  additional  five year  term.  The
purchase of the property was financed by the US Small  Business  Administration,
and RefTech has the right to terminate the lease on 120 days prior notice in the
event of a foreclosure of the property.  (See Item 1 - "Business- Acquisition of
QAI").

         The  property  in Westway,  Texas,  located on a 6.5-acre  parcel,  was
purchased  in April 1997 for  $450,000.  RefTech has  renovated  the property to
conduct AC2 manufacturing  operations thereon, for approximately $125,000. There
were also  expenditures  of  approximately  $200,000 for machinery and equipment
used in manufacturing operations. The purchase of the property,  renovation, and
machinery  and  equipment  were  paid by the  Company  from its  available  cash
resources,  and the Company in October  obtained a $600,000  interim  short-term
loan from Norwest  Bank,  until an SBA  ($250,000) / Norwest Bank  ($350,000) 10
year loan was  obtained and  finalized  on January 14, 1998.  The rates on these
notes are 5.90% and 9.25% interest on an annual basis, respectively.

         The property in Ciudad Juarez, Mexico, located on a 1.8 acre parcel, is
leased by Industrias RTI from an unaffiliated  third party, for the sole purpose
of manufacturing fiberglass articles, pursuant to a five year triple-net lease
expiring  in  January  31  ,of  2001,  at  an  annual  rental   increasing  from
approximately  $109,003 in 1998 to  approximately  $123,500 in the fifth year of
the term, plus the amount of value-added taxes 10% for 1998.

         The Company  believes that its  properties  are  adequately  covered by
insurance  and are suitable  and  adequate for their  present use, and that such
properties  offer the  Company  the  appropriate  capacity  for its  anticipated
operations.

<PAGE>


         In addition to the properties  used by the Company in the operations of
the air cooling and air conditioning business, the Company owns approximately
263 acres of property in Rockaway  Township,  New Jersey,  all of which property
(collectively,  the "Rockaway  property")  was acquired  from a  predecessor  of
Morton Thiokol, Inc.  ("Thiokol").  The Company has leased a 62 acre parcel (the
"SteriGenics  parcel"),  which includes the Company's  former 30,600 square foot
irradiation  facility,  to SteriGenics  East  Corporation  ("SteriGenics  East")
pursuant to a lease,  for an initial six year term expiring in August 2002, with
a five  year  renewal  option,  at a base  rent  of  approximately  $77,000.  In
addition,  as part of the lease,  the Company has  granted  SteriGenics  East an
option, during the initial term of the lease, to purchase the SteriGenics parcel
at a price  decreasing  from  approximately  $405,000 on or after August 1997 to
$138,000 in August 2002.  If the  environmental  redemption  on the  SteriGenics
parcel  (see  Item  3  -  "Legal   Proceedings   --  New  Jersey   Environmental
Proceedings") has been  substantially  completed and the SteriGenics  parcel has
been removed from the national  Properties List by the expiration of the initial
term of the lease,  the  Company  has the right to require  SteriGenics  East to
purchase  the  SteriGenics  parcel  in August  2002 at a price of  approximately
$138,000.  In order to obtain certain  assurances form the New Jersey Department
of Environmental  Protection (the "NJDEP"),  SteriGenics provided the NJDEP with
$500,000  letter of credit  (the  "L/C") to secure  certain  obligations  of the
Company to complete the environmental  remediation on the SteriGenics parcel. In
connection  therewith,  the  Company  has  agreed  that  if the  NJDEP  has  not
voluntarily  reduced  the L/C by at least  $40,000 by August 1, 1998,  and by at
least such amount by each anniversary  thereafter through the end of the initial
term of the lease,  the Company  will provide a letter of credit to the NJDEP in
the amount of such deficiency.  The Company also has granted  SteriGenics East a
right to set off the  rental  payments  on the lease in the event that the NJDEP
draws down on the L/C and the Company fails to reimburse  SteriGenics  therefore
or if the Company  otherwise  commits  certain  defaults on its  obligations  to
complete  the  environmental   remediation  on  the  site.  In  the  event  that
SteriGenics  East  elects  not to renew the  lease,  SteriGenics  has  agreed to
continue  to  provide  to the  NJDEP a letter  of  credit  in an amount of up to
$300,000  and the  Company  has  agreed to the to keep in effect  its  letter of
credit  for up to the lesser of  $200,000  or the amount  then  required  by the
NJDEP.

         The  remaining  201 acres of the Rockaway  property,  which adjoins the
SteriGenics  parcel,  includes a 65-acre former  industrial  park and has a book
value of $50,000.  The Company is delinquent in the payment of local real estate
tax on this property; such delinquency,  with penalties and interest, aggregated
approximately $306,598 as of December 31, 1998 and has been accrued by
the Company in its financial statements. The failure to make this tax payment is
non-recourse to Company's remaining Rockaway property and other assets.

         A  substantial  portion of the  Rockaway  property  has been pledged to
secure certain obligations of the Company. Item 6 - "Management's Discussion and
Analysis or Plan of Operation" and Note 8 to Consolidated  Financial  Statements
included under Item 7 - "Financial Statements".

         See also Notes 7, 9, 10, and 13 to  Consolidated  Financial  Statements
included under Item 7 - "Financial Statements".

<PAGE>
Item 3.  Legal Proceedings

         In 1982, the New Jersey  Department of  Environmental  Protection  (the
"NJDEP")  commenced  an action in the  Superior  Court of New  Jersey,  Chancery
Division,  Morris  County  (Docket No.  C-2463-81E)  against the Company and Dr.
Martin A. Welt (the Company's then President), individually, alleging coalitions
of the New Jersey  Spill  Compensation  and Control Act and the New Jersey Water
Pollution  Control Act and sought  injunctive  relief, by way of clean-up of the
Company's  Rockaway property (which had been purchased from Thiokol),  penalties
and damages.

         In 1983, a Consent Order was entered into requiring the installation of
monitoring wells, groundwater sampling and analysis. As a result of the analysis
of data showing the presence of  halogenated  hydrocarbons  in the  groundwater,
submitted  by the NJDEP to the United  States  Environmental  Protection  Agency
during  this  period,  a portion  of the  Rockaway  property  was  placed on the
National Priorities List as a "superfund site". Such listing was based on a 1984
evaluation of a 15-acre  portion of the Rockaway  property;  however,  the exact
boundaries of the "superfund  site" were not  determined.  The Company  believes
that the  Boundaries  encompass  approximately  80 acres of the 263  acres  that
comprise the Rockaway property.

         In 1986,  the NJDEP  issued a  directive  ordering  the Company and Dr.
Welt,    individually,    to   fund   the   cost   of   a   Phase   I   Remedial
Investigation/Feasibility  Study (the "Phase I Study") to  determine  the nature
and extent of contamination  detected primarily on the 15 acre operating portion
of the Rockaway property.  Since failure to comply with the directive could have
subjected the Company to triple damages,  the Company agreed to fund the Phase I
Study  and to pay the  administrative  costs of the  NJDEP.  As a result of such
agreement,  in 1987, a Stipulation of Dismissal regarding the Company, only, was
filed in the 1982 action.

         In 1989, the NJDEP issued a second directive to the Company and Thiokol
for a Phase II  Remediation/  Investigation  Feasibility  Study  (the  "Phase II
Study") primarily with respect to an additional  65-acre portion of the Rockaway
property.  According to the directive, both the Company and Thiokol were jointly
and  severally  liable for all costs of the clean up and  removal  of  hazardous
substances  discharged on the Rockaway property. In 1991, the Phase II Study was
completed  and the NJDEP  advised the  Company  and Thiokol  that it intended to
perform  additional  groundwater  studies  in order to  delineate  the extent of
groundwater  contamination.  In 1992,  the Company and Thiokol  entered  into an
administrative  consent  order  ("ACO")  with the NJDEP,  pursuant  to which the
Company  (i) agreed to pay all costs  incurred in  connection  with the Phase II
Study,  and (ii)  agreed  to  implement  appropriate  actions  to  complete  the
remediation  of the Rockaway  property under the  supervision  of the NJDEP.  In
connection  with the ACO, the Company,  in 1992,  established an accrual for its
estimated  costs  associated  with the Phase II Study and the remediation of the
Rockaway  property.  During  1993,  the Company was  assessed  additional  costs
related to the Phase II study, and the Company  completed the surface cleanup of
the Rockaway property, which included, among other things, excavating soils with
PCB levels above NJDEP  non-residential  standards.  In August 1996, the Company
made a  payment  of  $575,000  to the  NJDEP  as  full  settlement  of all  then
outstanding  financial claims asserted under the ACO, as well as all such claims
which could be asserted for the period ended  October  31,1996 and, as a result,
the NJDEP released the lien it had placed on the Rockaway property.
<PAGE>
         During 1994, the NJDEP issued a Record of Decision ("ROD") with respect
to  approximately  80 acres of the Rockaway  property,  which proposed  remedial
action involving  hydrofracturing of the cracked bedrock and the installation of
a system to pump and  treat the  groundwater  under a  portion  of the  Rockaway
property. During 1995, the Company conducted a three-well pilot study, using the
"Clean-Ox" hydrogen peroxide-based remedial system, to test its effectiveness in
decreasing contaminant levels in the deep aquifer. Based upon the results of the
study,  in February 1996,  the Company  petitioned the NJDEP for a change in the
Remedial  Action Work Plan under the ROD to permit broader use of the "Clean-Ox"
system. In April 1996, the NJDEP responded to the Company's petition and advised
the Company that the pilot test of the  "Clean-Ox"  remediation  program was not
considered  conclusive.  In  September  1996,  the  Company  completed  a second
"Clean-Ox" test, which further reduced the contamination;  however,  on March 7,
1997, the NJDEP  reaffirmed its requirement that the Company comply with the ROD
and submit a revised  Remedial  Action Work Plan proposal in accordance with the
ROD.

         In November of 1997, the Company  submitted a Proposed  Remedial Action
Work Plan to the NJDEP.  This plan,  which required the installation of a single
recovery well, rather than three wells as was previously required,  was reviewed
by the NJDEP and accepted in February  1998,  subject to certain  modifications.
Under the modified plan, the "Clean-Ox"  technology was permitted,  and required
RTI to begin implementing the plan according to the proposed schedule.  In 1998,
the  installation of the ground water recovery system was to occur,  with ground
water  remediation to follow for a five-year  time frame,  subject to regulatory
concurrence  based upon favorable  results as groundwater is monitored.  RTI has
accepted the modified  plan,  but requested a 90 delay to the original  schedule
for  administrative  purposes.  RTI  recorded  a charge to  earnings  in 1997 of
$215,285  to reflect the revised  cost  estimate of the program  approved by the
NJDEP.

Nascolite Site

         In August 1994, the US Environmental  Protection  Agency ("EPA") issued
an Administrative Order (No. II-CERCLA-94-0124)  ("Order") naming the Company as
a respondent in a proceeding  under Section 106(a) of CERCLA,  alleging that the
Company,  along  with two  other  respondent  and  eight  previously  identified
potentially responsible parties (collectively the "PRP Group"), arranged for the
disposal or  transport  for  disposal  of one or more  hazardous  substances  to
property  owned  by  Nascolite   Corporation  (a   manufacturer   of  polymethy1
methacrylate  ("MMA")  plastic  sheet) in  Millville  and  Vineland,  New Jersey
("Nascolite  Site").  The  Nascolite  Site was  operated by Nascolite as a scrap
acrylic  reclamation  facility  from 1953 to 1980 and was placed on the National
Priorities List in 1984. Subsequently,  a Remedial Investigation and Feasibility
Study was  conducted  and various  hazardous  materials  were found to be on the
Nascolite  Site. In 1988, the EPA issued a Record of Decision for operative unit
1 ("OU1"),  which addressed ground water  remediation on the Nascolite Site and,
in 1991, the EPA issued a Record of Decision for operative unit 2 ("OU2"), which
addressed contaminated soils and structures on the Nascolite Site. A Preliminary
Waste-In-List prepared in 1990 by the EPA indicated that 5,468,455 pounds of
hazardous materials, primarily liquid waste MMA, was sent to the Nascolite Site.
The  Company  has no  current  record of any such  shipments,  except for a 1978
invoice reflecting that 4,400 pounds of "sludge" was picked up by Nascolite from
the Company for transport to the Nascolite  Site. The Company's  operations have
not used MMA or generated MMA sludge for more than the past six years.
<PAGE>

         The Order requires that each of the respondents named therein undertake
and complete all  response  actions to implement  the Record of Decision for OU1
(estimated  to cost  between $7 million and $30  million) as a joint  effort and
that the Company and the PRP Group are to be jointly and  severally  responsible
for  carrying  out all of the  requirements  of the  Order;  and that if the EPA
incurs any future  response  costs due to a failure by the named  respondents to
comply with the offer,  each of the named  respondents  will be responsible  for
triple  damages,  penalties of up to $25,000 per day and other  penalties  under
CERCLA.  The  EPA has not  yet  asserted  any  claims  against  the  Company  in
connection  with the Record of Decision  for OU2. On January 26,  1995,  the EPA
also  notified  the  Company  that  it  had  incurred  previous  response  costs
aggregating  in excess of $3.9  million  with  respect  to the  Nascolite  Site,
demanded  payment  thereof  plus  interest  and offered the Company the right to
enter into  negotiations  with the PRP Group to lead to reimbursement to the EPA
of Response  Costs.  On February 9, 1995,  the Company,  without  admitting  any
liability,  notified  the EPA  that it  elected  to  participate  in good  faith
negotiations  with the PRP Group.  Simultaneously,  the Company  entered  into a
Tolling Agreement with the United States on behalf of the EPA, pursuant to which
the EPA agreed not to institute the alleged cause of action  against the Company
prior to  September  1, 1995 in order to permit the Company to pursue good faith
efforts to settle with the PRP Group the claims  alleged  against the Company in
the Order.

         In 1996, the Company entered into a Partial Consent Decree with the EPA
pursuant to which the Company  agreed to pay the EPA, upon court approval of the
Partial Consent Decree, $32,247 in settlement of all OU1 claims. This settlement
of $32,247 was paid by the Company in 1997.

         By letter dated  October 1, 1996 the NJDEP  advised the Company and the
other members of the PRP Group that the NJDEP is seeking approximately  $285,000
from the PRP Group for its response costs at the Nascolite Site. The Company has
agreed to allow the PRP Group to represent it in negotiations  with the NJDEP as
long as the PRP Group agrees that the "de minims" parties,  such as the Company,
contribute  pro-rata on the same basis as the EPA  settlement  involving OU1 (in
which  instance,  the Company's  pro-rata  share was fixed at 0.09% of the total
cost, or approximately $257.00).


General

As of December 31, 1998,  the Company had accrued  $927,139.72  for the possible
implementation  of a  groundwater  remediation  plan  required by the ROD on the
Rockaway property.  While the groundwater remediation plan calls for a five year
remediation  time frame using one well,  testing at that time will  determine if
the remediation will be deemed adequate, and discontinue,  or if the remediation
will continue  beyond the five year period.  As a result of ongoing  remediation
and NJDEP  involvement  on these  matters,  there can be no  assurance  that the
cleanup,  remediation and NJDEP oversight  accruals will represent the Company's
ultimate liability.  See Note 10 to Consolidated  Financial  Statements included
under Item 7 - "Financial Statements."


<PAGE>
Item 4.  Submission of Matters to a Vote of Security Holders.

         This information has been reported on the third quarter 1998 report.

         Annual Meeting Dates - RTI held an annual  meeting of its  stockholders
in 1998.  Shareholders  of record on July 27,  1998 were  notified of the Annual
Meeting to be held on August 27,  1998.  The  meeting on August 27 was called to
order and postponed until September 1 to allow sufficient  shareholder  votes to
be recorded  by the  transfer  agent.  By  September  1,  sufficient  votes were
received and the annual  meeting was held  accepting the votes of those present,
and accepting  the votes by proxy for those not present.  Each matter voted upon
will be described below. Because of a material change in proposal 3, the meeting
was continued until September 10, so that shareholders  could be notified of the
change, and either be present for the continued Annual  Shareholders  Meeting or
file votes by proxy on that matter separately.

         The Company has 1,611,166  shares  outstanding,  plus 100,000 shares of
preferred stock with equal voting rights,  for a total of 1,711,166 votes. Total
shares voted were 1,488,303,  which exceeded the 50% required for a quorum.  All
proposals passed, except proposal 3, which is discussed below in greater detail.
There were no other  business  matters  brought before the  shareholders  at the
annual meeting.

     Matters voted on:

1. To elect five directors for a one-year term expiring in 1999.
                                                                        Broker
              Director                         For   Against  Abstain  Non-vote

         Rick E. Bacchus            1,441,495        46,808
         Rockney D. Bacchus         1,451,449        36,854
         Ronald A. Bacchus          1,441,449        46,854
         Dr. Lanny Snodgrass        1,451,399        36,904
         Joel S. Kanter             1,451,495        36,808

Mr. Kanter is elected as a new director,  and the remaining nominees are elected
as continuing directors.

2.   To ratify the purchase of certain assets from Bacchus, Industries, Inc., an
     affiliated  company, in exchange for 450,000 shares of the Company's Common
     Stock.

     This issue passed with a 55% vote.
                                     Broker
            For   Against  Abstain  Non-vote
         736,547  40,672   151,078  560,006

To approve a private  placement of Units (each Unit to consist of two (2) shares
of Common  Stock and one (1) five (5) year  Common  Stock  Purchase  Warrant  to
purchase  one (1) share of Common  Stock at an  exercise  price of $3.00) on the
revised terms set forth in the Revised Proxy Statement.

     This issue failed for insufficient votes (see discussion below).
                                     Broker
            For   Against  Abstain  Non-vote
         546,873  11,583     1,399  928,448
<PAGE>

3.   To approve the granting of performance  options for up to 1,564,000  shares
     of Common  Stock to certain  members of  management  of the  Company on the
     terms set forth in the Proxy Statement.

     This issue passed with a 55% vote.

                                     Broker
            For   Against  Abstain  Non-vote
         819,465  98,706    10,126  560,006

4.   To approve an amendment to the Company's  Certificate of  Incorporation  to
     increase the authorized number of shares of Common Stock from 15,000,000 to
     25,000,000.

     This issue passed with a 96% vote.

                                     Broker
            For   Against  Abstain  Non-vote
         1,420,480         58,488     9,355

         Proposal  No. 3 was to approve a private  placement  of Common Stock to
generate  minimum  gross  proceeds of $2,000,000  and maximum gross  proceeds of
$5,000,000.  The  investment  banking  firm  revised  the  terms of the  private
placement  prior to the August 27  shareholders'  meeting,  requiring  a revised
proposal No. 3 to be voted on separately.  A revised notice of Annual Meeting of
Stockholders to be held on September 10, 1998 was  distributed to  shareholders,
with  a  proxy  for   shareholders  to  return  to  the  stock  transfer  agent.
Unfortunately,  insufficient  votes on this separate  issue were returned to the
stock transfer agent by September 15th, the last day of voting.

         RTI believes that there is a need for an additional  capital injection,
and although  Proposal No. 3 did not pass because of  logistics,  the vote tally
from those  shareholders  that were able to vote  indicates  strong  shareholder
support for such a capital injection. RTI intends to resubmit a revised proposal
similar to Proposal No. 3 when it successfully obtains a firm commitment from an
investment-banking firm. RTI is presently negotiating such an agreement, but has
not finalized the terms.  There is no guarantee that such terms will be reached,
that the proposal will be passed by the  shareholders,  or that the  marketplace
will subscribe to the private placement.


<PAGE>



                                              PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

         The  Company's  Common Stock is traded on The NASDAQ  Small-Cap  Market
under the symbol  "RTII".  The  following  table sets forth the high and low bid
quotations  for each  quarterly  period  during  the two  calendar  years  ended
December  31, 1998 for the  Company's  Common  Stock,  as reported by The NASDAQ
Small-Cap Market.

                                                     High Bid          Low Bid

                  1st Quarter  1997                    3-1/2             2-9/16
                  2nd Quarter 1997                     3-3/4             1-1/2
                  3rd Quarter  1997                    8-3/8             3-3/4
                  4th Quarter  1997                    8-5/8             2-5/8

                  1st Quarter  1998                    6-1/4             3-3/16
                  2nd Quarter 1998                     3-5/8             1-1/4
                  3rd Quarter  1998                    2-0/0             0-1/3
                  4th Quarter  1998                    0-9/16            0-3/16


         As of March 30, 1999,  the Company had  approximately  1,300 holders of
record of its Common  Stock.  During the fiscal year ended  December  31,  1998,
there were  transactions in the Company's Common Stock on  approximately  50% of
all trading days.

         In September  1998,RTI  was  delisted  from the NASDAQ small Cap Market
pursuant  to a  requirement  to maintain  tangible  net assets in excess of $4.0
million.  This action by NASDAQ will result in greater  difficulty  in obtaining
equity funding for the company.

         The  Company  has not paid any common  dividends.  The  payment of cash
dividends the Company,  if any, will be made only from assets legally  available
therefore and will depend generally upon the Company's  short-term and long-term
cash availability,  current and anticipated capital  requirements,  restrictions
under any then existing credit and other debt  instruments and  arrangements and
other factors deemed relevant by the Company's Board of Directors. The Company's
Board of Directors  does not  anticipate  the payments of cash  dividends on the
Company's Common Stock as long as the Company's Rockaway property remains on the
National Priorities List as a "superfund site".

         In  1997,  the  Company  closed  on  a  private  placement  of  100,000
authorized but unissued  shares of Series B Preferred  Stock at $5.80 per share,
with gross proceeds of $580,000.  The dividends on such preferred  stock are 9%,
or $52,200 annually,  payable at the end of each quarter.  After the sale of the
preferred  stock, the Company  inadvertently  entered into the note with Norwest
Bank that  prohibited  the payment of the preferred  dividends.  Because of this
conflict, the Board of Directors did not declare dividends for the quarters
ended December 31, 1997,  March 31, 1998, June 30 of 1998,  September 30 of 1998
and December 31 of 1998. However, for the preferred shareholders,  dividends are
cumulative, whether or not declared. The Company has requested that Norwest Bank
waive the prohibition of dividend  payments with respect to the preferred stock,
but has been revoke and as March 30 of 1999 has not approved.

<PAGE>

Item 6.  Management's Discussion and Analysis or Plan of Operation.

         IN REVIEWING MANAGEMENT'S DISCUSSION AND ANALYSIS, REFERENCE IS MADE TO
THE  CONSOLIDATED  FINANCIAL  STATEMENTS  AND NOTES  THERETO  INCLUDED AS ITEM 7
"FINANCIAL  STATEMENTS"  IN THIS ANNUAL  REPORT ON FORM 10-KSB.  AS DISCUSSED IN
SUCH  NOTES,  THE  COMPANY  OWNS  PROPERTY  WHICH  HAS  BEEN THE  SUBJECT  OF AN
ENVIRONMENTAL INVESTIGATION.  SUCH FINANCIAL STATEMENTS, AS STATED IN THE REPORT
OF  INDEPENDENT   CERTIFIED  PUBLIC  ACCOUNTANTS  INCLUDED  THEREIN,  HAVE  MADE
PROVISION FOR THE COSTS OF SUCH INVESTIGATION AND RESULTING MONITORING,  CLEANUP
AND  REMEDIATION  OBLIGATIONS  IN ACCORDANCE  WITH EXISTING  STUDIES AND CLEANUP
PLANS.  HOWEVER THERE CAN BE NO ASSURANCE  THAT SUCH PROVISION  CONSTITUTES  THE
ULTIMATE   LIABILITY  THAT  MAY  RESULT  UPON  THE  FINAL   DISPOSITION  OF  THE
ENVIRONMENTAL INVESTIGATION, CLEANUP AND REDEMPTION PROGRAMS.

Disclosure Concerning Forward-Looking Statements

         Certain statements contained in this Annual Report on Form 10-KSB under
Item 1 "Description of Business " and this Item 6 - "Management's Discussion and
Analysis or Plan of  Operation"  may be considered  forward-looking  statements.
Such  statements  relate,  among other  things,  to the plans and  objectives of
management for future operations,  including plans or objectives relating to the
products  of the  Company,  management's  estimate of certain  future  costs and
expenses  and  the  future  performance  of the  Company.  Such  forward-looking
statements  are subject to risks,  uncertainties,  and other factors which could
cause the  Company's  actual  results to differ  materially  from any  projected
results  expressed or implied by such forward looking  statements.  These risks,
uncertainties   and  other  factors  include,   but  are  not  limited  to,  the
uncertainties  accompanying new product  marketing,  including market resistance
and the timing and  ability to  establish  the  necessary  sale,  marketing  and
distribution  network, the impact of current and future government  regulations,
the  seasonal  nature of the industry in which the Company  operates,  the risks
associated  with a transition  from  limited  production  volume,  the impact of
competitive  products,  the ability to have  available  projected cash and other
resources on a timely basis,  if at all, the risks involved with a manufacturing
operation in Mexico, as well as the other facts discussed in Item 1 "Description
of Business" and elsewhere in this Annual Report on Form 10-KSB.


                                          Results of Operations

1998 Results of Operations Compared to 1997 Results of Operations

1998 revenues consisted primarily of cooler and air conditioning  business sales
of  $2,929,535  interest and rental income of $7,621 and $77,832  respectively.
This is  compared to 1997  interest  and rental  income of $45,773 and  $83,611,
respectively.  Cooler and air conditioning for 1997 was $3,161,811. Other income
in 1998 consisted of $40,870 compared with $46,179 of 1997.

         In 1998, the Company  recorded cost of sales of $3,636,942 and Research
& Development  expense of  $1,243,913  compare with  $3,242,829  and $774,720 of
1997.  The R & D expenses,  which may not be reflective  of ongoing  operations,
were the result of a heavy emphasis in 1998 & 1997 on  modification  of the AC2,
including  fine  tuning  the unit for  efficiency  in the Air  Conditioning  and
Refrigeration  Institute energy  efficiency test,  preparing for and passing the
ETL safety certification test,  development of product assembly lines,  training
of  production  personnel,  change  out  of  components  on  units  for  safety,
efficiency, or product appearance purposes.  Additionally, while moderate levels
of sales were achieved in 1997 (for AC2 units ),most of those units came back in
1998 for modifications .
<PAGE>

         General  &  Administrative  (G&A)  expenses  were  $970,099  in  1998
compared to $963,817 in 1997. The increased costs are primarily  attributable to
the  expectation  of the first  complete AC2 season and increase of the overhead
and support for sales and  production.  Major  components of the air-cooling and
air conditioning  operations G&A include administrative  salaries of $451,069 in
1998  compare  with  $405,000  of 1997 office  supplies  and  communications  of
$182,093 in 1998  compare with  $150,000,  1997 legal and  professional  fees of
$115,876 in 1998 compare with $89,000 of 1997,  depreciation and amortization of
$157,768  in  1998  compare  with  $140,000  1997,  transportation  expenses  of
$35,971,in 1998 compare with $52,000 of 1997 and interest  expense from $386,797
of 1998 to $55,000 of 1997 .

         Selling expenses in 1998 were $1,247,546 compared with $655,824 in 1997
consisting  primarily of  advertising  of $193,549 in 1998 and $281,000 in 1997;
sales salaries of $123,100 in 1998 and $133,000 in 1997;  sales travel  expenses
of $35,293 in 1998 and $49,000 in 1997. The mayor  component of this increase is
related to the warranty reserve for AC2 due to the improper operation of the new
"fill and drain"  model for  $722,000 , As December 31 of 1998 $96,131 from this
reserve was used,  $625,869  reserve to applied on the following  six month,  As
March 28 of 1999 still missing about 450 units to payback to customers and about
1200 units which may need replace the fill and drain kit.  Management thinks the
reserve is enough to pay all expenses  related with the "fill & drain" model and
will not happen more failures on the model during  1999.The  replaced design has
been implemented and simplified, however can be no assurance .

Expenses  for  Rockaway  Industrial  Park ware for 35,460 in 1998,  compare  to
$249,855 in 1997,  primarily due to a lower reserve for future  remediation cost
recorded for the Rockaway property.

As a result of the  foregoing,  the  Company  sustained  a loss from  continuing
operations of $4,492,352, or loss of $2.88 per share in 1998, compared to a loss
from continuing operation of $1.92 per share in 1997.

         In 1996,  the  Company  sustained a loss of $72,000  from  discontinued
irradiation  operations before the final decision to sell such operations and an
additional  loss of $24,242 from the disposal of such  operations.  As a result,
the Company  reported a net loss of  $297,182,  of $0.27 per share in 1996.  The
1997 net loss is $1.92 per share. The 1998 net loss is $2.88 per share.


<PAGE>
Uncertainty of Future Operating Results

         Until August 1996, the company was engaged primarily in the business of
supplying irradiation services, which operations were sold on August 8, 1996. On
February 24, 1997,  the Company  purchased an air-cooling  and air  conditioning
manufacturing  business.  Prior to such time,  the Company had no  experience in
manufacturing,  marketing and selling air-cooling and air conditioning  products
or in marketing and selling any products  through  retail  channels.  Thus,  any
discussion  of the  Company's  results of  operations  for the  periods  through
December 31, 1996 are not a meaningful  indication  of the results of operations
which may be expected  subsequent to such date and should not be relied upon for
such purpose. Furthermore, while the Company produced and sold a moderate level
of its AC2 air conditioners in 1997 & 1998, operations were centered,  not fully
on production,  but rather on  development.  In 1997 & 1998, the Company refined
the AC2 product,  obtained  necessary  government  certifications for safety and
energy  efficiency,  developed  production  capacity (both  physical  production
capacity  at its  Westway  plant,  and  training  & support  of a  workforce  of
approximately  15 employees) in  anticipation  of full  production in 2000,  and
development  of a  distribution  network in the  southeast,  middle  south,  and
southwestern  regions of the US. Thus the results of  operations  in 1997 & 1998
may not be a meaningful  indicator of the subsequent results of operations,  and
should not be relied upon for that purpose.

         The Company expects that its future operating  results may fluctuate as
the Company gains further  manufacturing,  sales marketing experience in its new
business.  The cooling and air conditioner business is highly seasonal,  and the
Company anticipates that approximately half of its annual sales will be obtained
during a  three-month  period  from late  spring to early  summer.  The  Company
believes  that its future  success,  if any,  will be largely  dependent  on its
ability to market its AC2 air  conditioner,  of which there can be no assurance.
In addition, the Company's operating results will be significantly  dependent on
a number of factors,  many of which are outside the Company's control.  See Item
1-  "Description  of Business".  These  factors  include,  among others,  highly
competitive  market  conditions  and possible new product  introductions  by the
Company's  competitors,  most  of  whom  are  substantially  better  known  with
substantially  greater  financial  and other  resources  and offer  trade  named
products which already have received  significant market acceptance;  changes in
market demand;  ability to maintain  adequate working capital and cash resources
to purchase  necessary raw  materials  and  components  for the  manufacture  of
sufficient finished products,  to carry its anticipated  accounts receivable and
to carry out its marketing  plans; the ability to anticipate the mix of customer
orders which may be received and to manufacture products in advance thereof; the
timing of receipt of  customer  orders and the  ability to ship such orders on a
timely  basis;  market  acceptance  of the  Company's  products  the  ability to
successfully carry our its marketing plans;  continued  compliance with industry
standards and governmental regulations; the ability to continue to maintain
certain  manufacturing  operations in Mexico at a reasonable cost. A significant
portion of the Company's business may be derived from orders placed by a limited
number of larger  customers,  one of the main goals for 1999 is to increase  the
number of customer  including  the export to Mexico and Saudi Arabia but none is
for sure. In addition, if anticipated customer orders fail to timely materialize
and/or delivery schedules are deferred or canceled,  the Company may not be able
to timely and adequately adjust its commitments, to compensate therefor.
<PAGE>
Liquidity and Capital Resources

         Information  with  respect  to total  assets,  long-term  debt  (net of
current portion and discount), working capital (deficiency) and certain related
ratios, as of December 31, 1998,1997,  1996, 1995, follows. However, as a result
of the sale to SteriGenics International ("SteriGenics") of the Company's former
irradiation  business  in August  1996 (the  "SteriGenics  Transaction)  and the
acquisition of the business of Quality Air, Inc. ("QAI") in February of 1997 and
its affiliated Mexican company,  Industrias QAI, S.A. de C.V. ("Industrias QAI")
in April of 1997 (the "QAI  Transaction"),  limited  sources  of  capital  which
limited the purchases of asset in 1998, the  information set forth herein and in
"Results of Operations" below may be of only limited analytical value:

                                   1998       1997        1996             1995

Total assets (in thousands)        $4,637   $5,670       $4,244         $  7,882

Long-term debt, net of  discount
 (in thousands)                     $209     $257       $  265         $  2,024

Working capital (deficiency)
 (in thousands)                ($3,911)     ($113)      $2,994         ($1,116)

Working capital ratio          .28 to 1   .95 to 1     .32 to 1        .38 to 1

Percentage of total liabilities to
 stockholders' equity              315%    199%          45%              149%


The Company had cash and cash  equivalents of $2,578,180 and working  capital of
$2,994,640  at  December  31,  1996,  primarily  as a result of the  SteriGenics
Transaction. At December 31, 1997, the Company had cash and cash equivalents of
$11,712  and  working  capital  of  ($112,745).The  company  has  cash  and cash
equivalents of $9,361 and working capital of $(3,911,,423) at December 31, 1998.
The decrease in cash and working  capital can be attributed to assumption of air
cooling and air conditioning  operations in 1997 & 1998,  including  purchase of
fixed assets,  operating expenses, and research and development expenses,.  (See
Consolidated Statements of Cash Flows included under

         In 1998,  the net cash used in  operating  activities  was  $1,322,104.
Investing  activities  used net cash of $361,018  primarily  for the purchase of
fixed assets of $268,546 and loans to related parties of $74,649. In 1997,
the net cash used in operating  activities was $2,925,540  investing  activities
used  net  cash of  $986,422  primarily  for the  purchases  of  fixed  asset of
$1,250,013  offset  by the  sale of  irradiation  operation  . In 1998  net cash
provided by financing activities was $1,680,771 including proceeds from the sale
of 130,000  shares of common stock of $446,082 and Note  payables of  $1,173,363
compare  with 1997 net cash  provided by  financing  activities  was  $1,345,494
proceeds from the sale of 145,000  common share for $420,500 and 100,000  shares
of  preferred  stock for a total of  $580,000  .  Proceeds  from  notes  payable
provided  cash of $603,633 and two related  party loans  totaling  $593,000 were
offset by the payment for the earlier $830,000 note to related parties.

The Company had one related  party note  outstanding  at December 31, 1998,  for
$588,383 with its former  Chairman and CEO, Theo W. Muller  (Muller  Note),  and
another for $26,511 with Frellum Corporation  (Frellum Note), which is owned 51%
by  Mr.  Muller.  These  notes,  which  were  due on  February  20,  1998,  were

<PAGE>
renegotiated  effective  February 21, 1998. The terms of the Muller Note are 12%
annual  interest  up to August 20 of 1998 and 18%  thereafter.  The terms of the
Frellum Note are 12% annual  interest,  the balance along with accrued  interest
due and payable on February 20, 2000.

         On March 11, 1998,  the Company  consummated a private  placement of 25
Units at a purchase  price of $20,000  per Unit.  Each Unit  consisted  of 5,000
shares of Common Stock and a Warrant to purchase 2,500 shares of Common Stock at
a price of $4.50  per  share for a period of five  years  from  such  date.  The
$446,082 of net proceeds was applied to the Company's general working capital.
The  company  received a bridge  loan on April of 1998 for  $540,000  payable on
January 22 of 1999 which is in  default,  other  bridge  loans was  received  on
September  1998 for $25,000  ,payable on June 22 of 1999.  The first bridge loan
notes  have not been  renegotiated  , the note  holders  can sue the  company or
exercise the warrant of $4.50 each ,which will expire on April 22 of 2003.

         The  Company  also  obtained a credit line up to $1.80  million  with a
financing  company,  using as  collateral  its inventory ,As December 31 of 1998
company used $606,861 of the credit line. The company has a expectations that in
the following  months based on how the 1999 business plan is met the company can
rise money from the stock market. No assurances can be given that it can happen.

          The Company has obtained audited  financial  statements of QAI for the
period of January 1, 1997 to February 23, 1997, the date QAI was acquired by
RTI and for 1996. The Company now has two years audited  statements which allows
greater access to equity markets.  The Company also received  audited  financial
statement  for RTI  for the  year  1997  missing  only  1998  audited  finmacial
statements.  Such  audited  financial  statements  will enable the Company  from
fulfilling certain  requirements of the Securities and Exchange Commission under
the  Securities  Act of 1933  ("1933  Act"),  which  are a  precondition  to the
registration for public offering and sale of the Company's securities and, under
certain  circumstances,  for the  private  placement  of its  securities  if the
Company avails itself of Regulation D under the 1933 Act ("Regulation  D"). As a
result,  the Company will not be able to raise funds from the public sale of its
securities,  until after  receiving  audited  financial  statements for the year
ending December 31,1998.

         The  Company's  operations  conducted  at  Industrias  RTI  are  labor
intensive but, due to the prevailing wages paid and in Mexico,  the Company does
not expect inflation to have a material impact on the Company's business. Except
for the hiring of seasonal  employees  for its  manufacturing  operations  , the
turnover which is around 20 % monthly on production  area,  and 6-10  additional
employees  in Sales,  Marketing,  Production  Management,  and  Accounting,  the
Company does not expect any  significant  changes in the number of its employees
during 1999.

         The  February  24,  1997   acquisition  of  the  air  cooling  and  air
conditioning  business of Quality Air, Inc. has effected a substantial change in
the Company's consolidated balance sheet from the Company's consolidated balance
sheet  as of  December  31,  1996,  which  is  included  in  Item  7  "Financial
Statements".  The QAI Transaction  increased the Company's  property,  plant and
equipment and added an intangible  asset (air  conditioning  and related patents
and patent  application) of over one million dollars which, in the aggregate and
when combined with the increase in liabilities arising form the QAI Transaction,
will result in a reduction  in working  capital  and a reduced  working  capital
ratio.
<PAGE>

         As described in Note 10 to Consolidated  Financial  Statements included
under Item 7  "Financial  Statements",  the Company is  obligated to remediate a
portion of its Rockaway  property.  Costs  relating to such  activity  have been
provided for in  accordance  with  existing  environmental  studies and approved
cleanup plans.  There can be no assurance that such  provisions  will constitute
the ultimate  liability of the Company,  although the Company believes that such
provisions are adequate. In addition, the Company has been named a respondent in
an  environmental  proceeding  relating to a deposit  site, to which the Company
shipped a relatively  small  amount of materials  during a period prior to 1982.
The Company in 1997 paid the $32,247 amount reserved at December 31,1996.  Based
upon all available  information,  the Company is of the opinion that the accrual
is adequate, although there can be no absolute assurance that it will be
adequate.  As March 28 of 1999 company  received a proposal  from Crist Nelson a
New jersey company to buy Rockaway property and assume all liabilities existing.
The  proposal  has  received  on  formal  basis  and  on  the  following   weeks
negotiations  will start, the accepted would result in a substantial  profit for
the company. (See Item 3 - "Legal Proceedings").

New Accounting Pronouncements

         In October 1995,  the Financial  Accounting  Standards  Board  ("FASB")
issued Statement of Financial  Accounting Standards ("SFAS") No. 123 "Accounting
for  Stock-Based  Compensation".  The  Company  adopted  this  pronouncement  by
Company's  results of operation or financial  condition.  Effective for the year
 ended December 31, 1997, the Company adopted SFAS 128, "Earnings Per Share". In
adopting  this  pronouncement,  the company  computed  the loss per share on the
basis of the  weighted-average  number of common shares  outstanding  during the
year and did not  include  the  effect of  potential  common  stock,  which were
antidilutive.  The Company has adopted SFAS 130, Reporting Comprehensive
Income,  SFAS 131,  Disclosures  About  Segments  of an  Enterprise  and Related
Information,  or SFAS  132,  Employers  Disclosures  about  Pensions  and  Other
Postretirement  Benefits effective for the year ended December 31,
1998.  There was no material  change  in the  financial statements as a result
of adopting these statements.

Item 7.  Financial Statements.

         Attached hereto and made a part hereof.

Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

                  Not Applicable.



<PAGE>
                                  PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.

Directors and Executive Officers of the Company

The directors and the Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Name                                Age             Position with the Company

Rick E. Bacchus                     45               Director, President and Chief
Financial Officer, CEO , CFO.

Rockney D. Bacchus                  43               Director, Vice President of Development and
                                                     Secretary

Ronald A. Bacchus                   41               Director and Vice President of Manufacturing

Dr. Lanny Snodgrass                 58               Director
</TABLE>
         Each  director  holds his  office  until  the next  Annual  Meeting  of
shareholders   and  until  his   successor  is  elected  or  until  his  earlier
resignation.

         Executive  officers are appointed by, and serve at the  discretion  of,
the Board of  Directors  for a term  beginning  on the date of their  respective
appointments  and until  their  respective  successors  are duly  appointed  and
qualified.

         Rick E. Bacchus has been a Director of the Company  since  February 24,
1997 and was elected President of the Company effective  February 24, 1997. From
November 1996 until February 24, 1997, Mr. Bacchus was president of QAI, and for
the ten months prior thereto was employed by QAI as an  independent  consultant.
Mr Bacchus has been president of Bacchus Industries, Inc. ("BII"), a predecessor
of QAI, since 1977,  although BII discontinued its active business operations in
December 1995.

         Rockney D.  Bacchus has been a Director of the Company  since  February
24, 1997 and was elected Vice President-Development and Secretary of the Company
effective  February 24, 1997.  From November 1996 until  February 24, 1997,  Mr.
Bacchus was vice  president  of QAI,  and for the ten months  prior  thereto was
employed by QAI as an independent  consultant.  Mr. Bacchus was a vice president
of BII from 1977 until January 1996.

         Ronald A. Bacchus has been a Director of the Company since February 24,
1997   and   was   elected   Vice    President   of   the   Company   and   Vice
President-Manufacturing  of RefTech  effective  February 24, 1997. From November
1996 until February 24, 1997, Mr. Bacchus was vice president of QAI, and for the
ten months prior  thereto was employed by QAI as an  independent  consultant.Mr.
Bacchus was a vice president of BII from 1978 until January 1996.
<PAGE>
         Dr.  Lanny  Snodgrass  was elected a director of the Company on January
31, 1998. Dr.  Snodgrass has been a practicing  psychiatrist  and physician with
chief  status at the VA Puget Sound  Health Care System  since 1996,  and on the
faculty of the  University  of  Washington  School of  Medicine,  Department  of
Behavioral  Sciences since 1997.  Prior to 1996, Dr.  Snodgrass was an Assistant
Professor at the UCLA School of Medicine.

         Pursuant to the Acquisition Agreement in which the Company acquired the
business of QAI, the Company agreed that,  during the period ending December 31,
2001,  Rick E. Bacchus,  Rockney D. Bacchus and Ronald A.  Bacchus,  as a group,
will have the non-assignable right to nominate three members the Company's Board
of Directors,  which  consisted of seven members at the time such  agreement was
entered  into.  Rick E.  Bacchus,  Rockney D.  Bacchus and Ronald A. Bacchus are
currently serving as directors pursuant to such agreement.

         The Company pays its directors  (other than full-time  employees of the
Company) at the rate of $6,000 per year and  reimburses  its directors for their
out-of-pocket  expenses  incurred  in  connection  with  their  services  to the
Company.

         No family  relationship  exists  among the  directors of the Company or
between any of such persons and the  executive  officers of the Company,  except
that Rick E. Bacchus, Rockney D. Bacchus and Ronald A. Bacchus are brothers.

         Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16  (a) of  the  Securities  Exchange  Act  of  1934  requires
executive officers, directors and persons who own more than 10% of the Company's
Common Stock to file within prescribed  periods initial statements of beneficial
ownership and  statements of changes in beneficial  ownership of their shares of
Common  Stock  with  the  Securities  and  Exchange  Commission  and The  Nasdaq
Small-Cap  Market,  on which the Company's Common Stock is traded.  Such persons
also are required to furnish the Company with copies of all such statements they
file.  Based on its review of the copies of such  statements  received by it and
written representations from certain of such persons, the Company believes that,
during 1998, all such filing  requirements  applicable to such persons were duly
complied with.


<PAGE>
Item 10. Executive Compensation.

         The  following  table  sets  forth the cash and cash  equivalents  paid
during the fiscal year ended  December  31, 1998 to the  Company's  Acting Chief
Executive  Officer.  No other  officer  is  compensated  at a rate in  excess of
$100,000 per year.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                            SUMMARY COMPENSATION TABLE
                                                                                                        Long Term 
                                                                                                       Compensation
                                                                                                    Awards      Payouts 
                               Salary          Bonus ($)      Other ($)    Restricted        Options/     LTIP      ALL
                                               ($)                           Stock             SARS                 OTHER
                                                                            Awards

Rick E.  Bacchus / CEO       1998             95,000
(2)

</TABLE>

(1)      Mr.  Bacchus  has the use of Company  owned  vehicle  having a value of
         approximately $2,500.

(2)      Mr. Bacchus is serving as the Company's acting Chief Executive  Officer
         since the resignation of Theo W. Muller.


Mr. Bacchus is currently being compensated at the rate of $95,000 per year.

Employment  Contracts  and  Termination  of  Employment  and   Change-in-Control
Arrangements.

         Pursuant to employment  agreements  between RefTech and each of Rick E.
Bacchus,  Rockney D.  Bacchus  and Ronald A.  Bacchus,  such  persons  have been
employed    as     President,     Vice     President-Development     and    Vice
President-Manufacturing,   respectively,   of  RefTech  for  a  five  year  term
commencing  February  24, 1997 at an annual  base  salary of $80,000,  which was
subsequently  increased  to $95,000 per year by the Board of  Directors on March
31,  1998,  with Messrs  Rick,  Rockney and Ronald  Bacchus  abstaining.  In his
employment agreement, Rick E. Bacchus also has been employed as President of the
Company  for the term of his  employment  agreement,  and the Company has agreed
that,  subject to its fiduciary duties,  as the sole shareholder of RefTech,  it
will encourage the directors of RefTech to elect Mr. Bacchus as the president of
RefTech during such term. Each of the employment agreements provides that upon a
termination of employment  thereunder without cause, the terminated  employee is
entitled to a  continuation  of salary for a period of two months in lieu of any
other entitlements.

As set forth above under Item I - "Business - Acquisition of QAI", on
February 24, 1997,  RefTech acquired the business and  substantially  all of the
assets of QAI. In connection  therewith,  RefTech agreed to deliver to QAI up to

<PAGE>
an  additional  225,000  shares of the  Company's  Common  Stock at such time as
certain  operating  results are achieved,  if such results are achieved prior to
January 1, 2002.  The Company has agreed  that,  in the event of an  unsolicited
bona-fide tender offer for a majority of the Company's then  outstanding  Common
Stock initiated prior to January 1, 2002, which the Company's Board of Directors
determines not to recommend to the Company's shareholders, such shares will be
delivered  even if such results  have not yet been  achieved.  Rick E.  Bacchus,
Rockney D. Bacchus and Ronald A. Bacchus
currently own substantially  all of the capital stock of QAI.

         The Company does not have any other employment agreement or termination
or change in control arrangement with any of its executive officers.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

         As of March 25, 1999, the Company had 1,611,166  shares of Common Stock
outstanding.  Set forth below is  information,  as of such date, with respect to
(i) each person who is known by the Company to be the  beneficial  owner of more
than 5% of the Common Stock,  (ii) each of the current directors of the Company,
and (iii) the beneficial  ownership of Common Stock of all current directors and
all executive officers of the Company, as a group.

                                        Number of Shares              Percent
Name and Address of Owner               of Common Stock               of Class

Quality Air, Inc.                           50,000 (a)               3.10%

c/o Rick E, Bacchus
301 Antone Street
Sunland Park, NM 88063

Rick E. Bacchus                              86,235 (b)                5.29%
301 Antone Street
Sunland Park, NM 88063

Rockney D. Bacchus                           86,235 (c)                5.29%
301 Antone Street
Sunland Park, NM 88063

Ronald A. Bacchus                           86,235 (d)                5.29%
301 Antone Street
Sunland Park, NM 88063

Dr. Lanny Snodgrass                            38,250 (e)                2.36%
8227 Juanita Drive
Kirkland, WA 98034

Theo W. Muller                                155,393 (f)               9.67%
20 Peach Hill Road
Darien, CT 06820

All directors and executive                   296,955 (g)              18.43%
officers, as a group (four persons)
<PAGE>
(a)  Includes  50,000  shares of Common  Stock held in escrow to cover  possible
indemnifications  claims, As March 29 of 1999 there are no claims against QAI by
RTI . On September 14 of 1998 185,000 shares ware transfer from Quality Air Inc.
to individuals as follow:


Shareholder                    Shares

William A Chamness             2,478
Ted Mills                      1,215
James N. Whitworth               243
Chriss Liden                  10,204
Mary Gunter Beeman             1,215
Charles Alvis Gunter           1,215
John Rohne Wright              7,289
Linda H. Ryan                    364
Allison K. Ryan                  364
Robert McKee Ryan                364
Bob Stewart                    4,854
M. J. Bacchus                  5,536
Rick E. Bacchus               49,887
Rocky D. Bacchus              49,886
Ronald A. Bacchus             49,886
                              ------
         Total               185,000

See Item I -  "Business  --  Acquisition  of QAI" Rick E.  Bacchus,  Rockney  D.
Bacchus and Ronald A. Bacchus,  directors and executive officers of the Company,
are  stockholders  of QAI. Each of such persons claims  beneficial  ownership in
approximately  33.2% of the shares held by QAI, and although he may be deemed to
beneficially  own  the  remaining  shares  held  of  record  by  QAI,  disclaims
beneficial ownership in such remaining shares.

(b)           Consists of 51,554 shares plus 33% of QAI Shares,  4,417 shares of
              Common Stock and a Redeemable  Warrant to purchase 2,209 shares of
              Common Stock at a price of $4.50 per share expiring in March 2003.

(c)           Consists of 51,554 shares plus 33% of QAI Shares,  4,417 shares of
              Common Stock and a Redeemable  Warrant to purchase 2,209 shares of
              Common Stock at a price of $4.50 per share expiring in March 2003.

(d)           Consists of 51,554 shares plus 33% of QAI Shares,  4,417 shares of
              Common Stock and a Redeemable  Warrant to purchase 2,209 shares of
              Common Stock at a price of $4.50 per share expiring in March 2003.

(e)      Consists of 25,500  shares of Common Stock and a Redeemable  Warrant to
         purchase  12,750  shares of Common  Stock at a price of $4.50 per share
         expiring in March 2003.

(f)      Consists of (i) 130,393 shares  directly  owned by Theo W. Muller,  the
         Company's  former  Chairman and (ii) 25,000  shares  directly  owned by
         Frellum,  which is 50.1%  owned by Mr.  Muller.  See Item 12 - "Certain
         Relationships and Related Transactions."

(g) Includes the shares referenced in notes (b), (c), (d) and (e) above.

         The Company does not know of any arrangements,  including any pledge by
any person of securities of the Company,  the operation of which at a subsequent
date may result in a change in control of the Company.
<PAGE>
Item 12. Certain Relationships and Related Transactions.

         As set forth above under Item 1 - "Business --  Acquisition of QAI", on
February 24, 1997, the Company's  wholly-owned  subsidiary,  RefTech, in the QAI
Transaction,  acquired the business and  substantially  all of the assets of QAI
for the  consideration  set forth  therein.  The Company has been advised by QAI
that  the  stockholders  of  QAI  had a  basis  in  their  investment  in QAI of
approximately $150,000 and that the stockholders of QAI's affiliate,  Industrias
QAI,  had a nominal  basis in their  investment  in such  company.  The tangible
assets of QAI, as of February 23, 1997, consisted primarily of approximately (i)
$170,000 of inventory (a portion of which was at Industrias  QAI), (ii) $159,000
of furniture,  equipment and vehicles,  (ii)$229,000 of loans to and receivables
from, Industrias QAI, (iv) $348,000 of third party receivables,  (v) $123,000 of
other assets,  and (vi) $17,000 of cash. The intangible  assets of QAI consisted
primarily of a pending US patent application,  know-how and other good will. The
patent was assigned to QAI by Rockney D.  Bacchus,  relating to  high-efficiency
central air conditioners.

         In the QAI Transaction,  RefTech assumed certain specified  liabilities
of QAI, consisting of QAI's (i) indebtedness to the Company aggregating $690,000
plus accrued  interest,  which was  incurred by QAI prior to its  December  1996
letter of intent with the Company,  (ii)  indebtedness to Theo W. Muller,  Chief
Executive  Officer and Chairman of the Company  during 1997,  and his affiliated
companies  aggregating $830,000 plus accrued interest,  which loans were made in
contemplation of, and to facilitate, the Closing, (iii) QAI purchase commitments
incurred in the ordinary course of QAI's business for inventories,  supplies and
services  aggregating  approximately  $1,300,000,  and (iv) other QAI  scheduled
liabilities  incurred  in the  ordinary  course  of QAI's  business  aggregating
approximately $276,000.

         As  part  of the  QAI  Transaction,  RefTech  entered  into  employment
agreements with Rick E. Bacchus,  Rockney D. Bacchus and Ronald A. Bacchus, each
of whom  became  a  director  and  executive  officer  of the  Company  upon the
consummation  of the  QAI  Transaction.  See  Item  10  "Executive  Compensation
--Employment  Contracts  and  Termination  of Employment  and  Change-in-Control
Arrangements" for the material terms of such employment agreements. In addition,
RefTech  continued  the  employment  of  Phillis  Bacchus,  the  wife of Rick E.
Bacchus, who handled personnel  administration and certain bookkeeping functions
for QAI and who has assumed similar responsibilities for RefTech, at a salary of
$28,730 per annum.

         RefTech  also agreed to lend Rick E.  Bacchus,  Rockney D.  Bacchus and
Ronald A. Bacchus,  collectively, up to an aggregate of $240,000, repayable with
interest at 1% over prime during the period  ending  December  31,  2001,  which
loans are to be secured by their respective shares of the Company's Common Stock
received by QAI in the QAI Transaction upon  distribution of such shares to them
by QAI in  liquidation  of QAI. As of December 31, 1997, an aggregate of $60,506
(in four separate  transactions)  had been loaned to Rick E. Bacchus and Phillis
Bacchus, jointly, pursuant to such arrangement, except that repayment thereof is
over the five year period from the date of the respective loan and the loans are
to be  secured  by the  makers'  shares  of QAI  stock  until  such  time as the
Company's  Common  Stock is  distributed  to them by QAI. In  addition,  each of
Rockney and Ronald Bacchus borrowed $9,747 from the Company on substantially the
same terms.
<PAGE>
        As described under Item 2 - "Description of Properties', RefTech leases
its Sunland Park, New Mexico facility from Bacchus  Industries,  Inc. As part of
the QAI Transaction,  Bacchus  Industries,  Inc. granted the right to RefTech to
acquire,  at fair market value (which is less than  acquisition  cost),  certain
equipment and vehicles which had been used by QAI. At the present time,  RefTech
has  the use of  such  equipment  and  vehicles,  without  any  cost,  until  it
determines  whether to make such acquisition.  The Board of Directors ratify the
purchase  of Bacchus  Industries  assets in exchange  for 450,000  shares of the
Company's Common stock, but the Bacchus Industries stockholder have not accepted
the offered at this time.

         In contemplation  of the  consummation of the QAI Transaction,  Theo W.
Muller,  the Company's former Chairman and Chief Executive  Officer and a former
director of the Company, and his affiliated companies,  lent QAI an aggregate of
$870,000 with interest thereon at the rate of 8.5% per annum.  Upon consummation
of the QAI Transaction,  such indebtedness was assumed by RefTech, the principal
amount was repaid in full on February  24,  1997,  and  approximately  $5,650 of
accrued   interest  thereon  remains   outstanding.   See  Item  1  -  "Business
--Acquisition of QAI".


Item 13. Exhibits and Reports on Form 8-K.

         The Company filed a Report on Form 8-K dated February 2, 1998
regarding Item 6, Resignation of Registrant's Directors (File No. 0-5887)

(a) Exhibits.

         All  financial  statements  required to be filed as part of this Annual
Report on Form 10-KSB are filed under Item 7 of this Form  l0-KSB.  A listing of
such financial  statements is set forth in Item 7, which listing is incorporated
herein by reference.


<PAGE>


                          Independent Auditors' Report

Board of Directors and Stockholders of
RTI Inc. and Subsidiaries

We have  audited the  accompanying  consolidated  balance  sheet of RTI Inc. and
subsidiaries (the Company) as of December 31, 1998, and the related consolidated
statement of operations,  stockholders'  equity and cash flows for the year then
ended.  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 audit. The financial statements as of December 31, 1997,
were  audited by Neff & Company  LLP,  who  merged  with Ricci & Ricci LLP as of
January 1, 1999.

Except as  discussed  in the  following  paragraph,  we  conducted  our audit in
accordance with generally accepted auditing  standards.  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 that our
audit provides a reasonable basis for our opinion.

We were unable to audit the Environmental  Remediation Liability as discussed in
Note 10 because we were unable to review current  consultant status reports.  We
were  unable  to  satisfy  ourselves  about  the  amount  of  the  Environmental
Remediation Liability by means of other auditing procedures.

As discussed in Note 4 to the  consolidated  financial  statements,  the Company
leases the building and certain equipment used in production from a company with
common  management.  In  addition,  the  Company  uses  certain  molds and other
production  equipment owned by the same company.  There is no formal contract to
continue the use of these assets.

As discussed in Notes 5 and 10 to the  consolidated  financial  statements,  the
Company  owns  property   which  is  the  subject  of   continuing   significant
environmental investigation and remediation.











                                                                    F-1


<PAGE>



Board of Directors and Stockholders of
RTI Inc. and Subsidiaries

In our opinion, except for the effect of such adjustments, if any, as might have
been determined to be necessary had we been able to satisfy  ourselves about the
Environmental  Remediation  Liability,  the  consolidated  financial  statements
referred to above  present  fairly,  in all  material  respects,  the  financial
position of RTI Inc. and  subsidiaries  at December 31, 1998, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 4 to the
financial  statements,  the Company uses production  equipment  without a formal
contract  for  its  continued  use.  Also,  as  discussed  in  Note  18  to  the
consolidated  financial  statements,   the  Company  has  suffered  losses  from
operations,  has current  liabilities in excess of current assets  available for
payment, and has a stockholders'  deficit. These matters raise substantial doubt
about its ability to continue as a going concern.  Management's  plans regarding
these  matters  also  are  described  in Note  18.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


Albuquerque, New Mexico
February 24, 1999























                                                                     F-2


<PAGE>

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


RTI INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997



ASSETS

                                                                               1998              1997

CURRENT ASSETS
    Cash and cash equivalents                                            $         9,361            11,712
    Accounts receivable, net of allowance
        of $18,020 in 1998 and $8,068 in 1997                                    191,497           234,993
    Inventory                                                                  1,317,649         1,979,893
    Prepaid expenses and other                                                    54,228           163,357
                                                                         ---------------------------------

               Total current assets                                            1,572,735         2,389,955

PROPERTY, PLANT AND EQUIPMENT,
    net                                                                        1,787,312         1,902,066

DUE FROM RELATED PARTIES                                                         111,206            80,000

INTANGIBLE ASSETS, net of accumulated
        amortization of $158,857 in 1998 and
        $72,353 in 1997                                                        1,135,057         1,204,193

OTHER ASSETS      31,635                                                          38,111


           Total assets                                                  $     4,637,945         5,614,325
                                                                         =================================

The Notes to Financial  Statements  are an integral  part of these  consolidated
statements.















                                                                     F-3


<PAGE>






LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

                                                                               1998              1997
CURRENT LIABILITIES
    Notes payable to related parties                                     $       627,811           593,000
    Notes payable                                                              1,173,363                 -
    Due to related parties                                                       174,469            39,295
    Due to customers                                                             404,207                 -
    Accounts payable                                                           1,088,297           796,521
    Accrued expenses                                                             387,208           119,592
    Accrued warranty                                                             621,312            14,294
    Accrued interest                                                             139,578            49,780
    Other current liabilities                                                    180,000           180,000
    Current portion of long-term debt                                            667,926           654,613
    Current portion of capital lease obligation                                   19,987                 -
                                                                         ---------------------------------

               Total current liabilities                                       5,484,158         2,447,095

LONG-TERM DEBT, net of $22,000
    discount in 1997                                                             209,858           257,344

CAPITAL LEASE OBLIGATION, net of
    current portion                                                               40,660                 -

OTHER LIABILITIES                                                              1,053,738         1,014,085

               Total liabilities                                               6,788,414         3,718,524
                                                                         ---------------------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
    Preferred stock, $.05 par value - shares
        authorized 2,000,000; shares issued
        and outstanding 100,000                                                    5,000             5,000
    Common stock; $.08 par value - shares
        authorized 25,000,000 in 1998 and
        15,000,000 in 1997; shares issued and
        outstanding 1,611,166 in 1998 and
        1,481,166 in 1997                                                        128,894           118,494
    Additional paid-in capital                                                18,115,261        17,679,579
    Accumulated deficit                                                      (20,399,624)      (15,907,272)
                                                                         ---------------------------------
               Total stockholders' equity (deficit)                           (2,150,469)        1,895,801
                                                                         ---------------------------------
               Total liabilities and stockholders' equity
                  (deficit)                                              $     4,637,945         5,614,325
                                                                         =================================

                                       F-4


<PAGE>



RTI INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997

1998     1997

Net sales         $                                                            2,929,535         3,161,861
Cost of sales                                                                  3,636,942         3,242,829
    Gross margin                                                                (707,407)          (80,968)

Selling expenses                                                               1,247,546           655,824
General and administrative expenses                                              970,099           963,837
Research and development expenses                                              1,243,913           774,720
                                                                         ---------------------------------
               Total operating expenses                                        3,461,558         2,394,381
                                                                         ---------------------------------

               Loss from operations                                           (4,168,965)       (2,475,349)
                                                                         ---------------------------------

Other income (expense)
    Interest income                                                                7,621            45,973
    Rental income                                                                 77,832            83,611
    Expenses of Rockaway Industrial Park,
        including interest expense of $22,000
        in 1998 and 1997                                                         (62,913)          (62,913)
    Environmental investigation, remediation
        and related legal expenses                                                     -          (249,855)
    Interest expense                                                            (386,797)          (55,031)
    Other income                                                                  40,870            46,179

               Total other income (expenses)                                    (323,387)         (192,036)
                                                                         ---------------------------------

               Net loss before income taxes                                   (4,492,352)       (2,667,385)

Income taxes                                                                         -                 -

               Net loss                                                  $    (4,492,352)       (2,667,385)
                                                                         =================================

Basic and diluted net loss per share                                     $         (2.88)            (1.92)
                                                                         =================================

               Weighted average number of
                  common shares outstanding                                    1,578,666         1,405,749
                                                                         =================================


The Notes to Financial  Statements  are an integral  part of these  consolidated
statements.




                                       F-5



<PAGE>



CONSOLIDATED  STATEMENTS OF  STOCKHOLDERS'  EQUITY  (DEFICIT) For the Year Ended
December 31, 1998 and 1997



                                                       Preferred Stock                 Common Stock       
                                                   Number                         Number
                                                  of Shares        Amount        of Shares       Amount

Balance, December 31, 1996                                 -  $           -      1,101,166   $      88,094

Issuance of common stock                                   -              -        380,000          30,400

Sale of preferred stock                              100,000          5,000              -               -

Dividends on preferred stock                               -              -              -               -

Net loss                                                   -              -              -               -

Balance, December 31, 1997                           100,000          5,000      1,481,166         118,494

Issuance of common stock                                                           130,000          10,400

Net loss                                                   -              -              -               -

Balance, December 31, 1998                           100,000  $       5,000      1,611,166   $     128,894
                                               ===========================================================


The Notes to Financial  Statements  are an integral  part of these  consolidated
statements.

















                                       F-6



<PAGE>





                       Additional
                         Paid-in        Accumulated
                         Capital          Deficit              Total

                     $    16,053,542      (13,227,131)        2,914,505

                           1,051,037                -         1,081,437

                             575,000                -           580,000

                                   -          (12,756)          (12,756)

                                   -       (2,667,385)       (2,667,385)
                     --------------------------------------------------

                     $    17,679,579      (15,907,272)        1,895,801

                             435,682                -           446,082

                                   -       (4,492,352)       (4,492,352)
                     --------------------------------------------------

                     $    18,115,261      (20,399,624)       (2,150,469)
                     ==================================================
























                                                         F-7



<PAGE>



RTI INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997



                                                                               1998              1997

CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                             $    (4,492,352)       (2,667,385)
                                                                         ---------------------------------
    Adjustments  to  reconcile  net  loss  to  net  cash  applied  to  operating
        activities:
           Depreciation and amortization                                         470,259           277,091
           Imputed interest on note payable                                            -            22,000
           (Increase) decrease in:
               Accounts receivable                                                43,497            31,612
               Inventory                                                         662,244        (1,565,844)
               Prepaid expenses and other                                        109,129            64,091
               Other assets                                                        6,476            (2,936)
           Increase (decrease) in:
               Due to related parties                                            178,576            94,900
               Due to customers                                                  404,207                 -
               Accounts payable                                                  306,070           485,612
               Accrued expenses                                                  343,119            94,939
               Accrued warranty                                                  607,018            14,294
               Other liabilities                                                  39,653           223,150
                                                                         ---------------------------------
                  Total adjustments                                            3,170,248          (261,091)
                                                                         ---------------------------------

                  Net cash (applied to) operating activities                  (1,322,104)       (2,928,476)
                                                                         ---------------------------------


CASH FLOWS FROM INVESTING ACTIVITIES
    Sale of irradiation operations                                                     -           407,944
    Purchases of fixed assets                                                   (268,546)       (1,250,013)
    Purchase of intangible assets                                                (17,823)          (28,184)
    Cash purchased with business
        acquisitions                                                                   -            16,624
    Loans and related party receivables                                          (74,649)         (129,857)
                                                                         ---------------------------------
               Net cash (applied to) investing
                  activities                                                    (361,018)         (983,486)
                                                                         ---------------------------------


The Notes to Financial  Statements  are an integral  part of these  consolidated
statements.




                                                                    F-8



<PAGE>



CONSOLIDATED  STATEMENTS OF CASH FLOWS  (CONTINUED) For the Years Ended December
31, 1998 and 1997



                                                                               1998              1997

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from the sale of common stock                               $       446,082           420,500
    Proceeds from the sale of preferred stock                                          -           580,000
    Proceeds from notes payable                                                1,173,363           603,633
    Proceeds from capital lease                                                   60,648                 -
    Proceeds from related party notes                                             70,633           593,000
    Payments on long-term debt                                                   (34,134)           (8,882)
    Payments on related party notes                                              (35,821)         (830,000)
    Payment of dividends                                                               -           (12,757)
                                                                         ---------------------------------
               Net cash provided by financing
                  activities                                                   1,680,771         1,345,494
                                                                         ---------------------------------

Net (decrease) in cash and
    cash equivalents                                                              (2,351)       (2,566,468)

Cash and cash equivalents, beginning of year                                      11,712         2,578,180
                                                                         ---------------------------------

Cash and cash equivalents, end of year                                   $         9,361            11,712
                                                                         =================================


The Notes to Financial  Statements  are an integral  part of these  consolidated
statements.

















                                                           F-9



<PAGE>



RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998



NOTE 1.        BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
               POLICIES

Principles of Consolidation.  The consolidated  financial statements include the
accounts  of RTI Inc.  and its wholly  owned  subsidiaries  (the  Company).  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

Business  Activities.  Prior to August 8,  1996,  the  Company  was  engaged  in
supplying gamma irradiation  services to the producers of a variety of products,
primarily  medical devices and disposable  medical  supplies.  In addition,  the
Company irradiated,  to a lesser extent,  cosmetics and other consumer products.
The Company  operated two facilities in New Jersey and one in North Carolina and
performed  the  majority  of  its  irradiation  services  for  customers  in the
respective areas of the facilities.

On August 8, 1996,  the Company  consummated  a  transaction  (the  "SteriGenics
Transaction") with SteriGenics International ("SteriGenics"), pursuant to which,
among other things,  SteriGenics  acquired  substantially  all the assets of the
Company,  other than cash and cash equivalents and the Company's  Rockaway,  New
Jersey  property  and the  irradiation  facility  located  thereon,  and assumed
substantially  all of the  liabilities  of the Company  (other than  liabilities
(including  environmental  liabilities)  related to the  Rockaway  property  and
liabilities  to  certain  affiliates  of the  Company).  A balance  of  $407,944
remained  in escrow  relating  to this  transaction,  which was  received by the
Company in the first quarter of 1997.

Since  February  24, 1997,  the Company  through its  subsidiary,  Refrigeration
Technology,  Inc., has been engaged in the manufacturing and sale of evaporative
coolers,  commercial  heat exchange  modules and  high-efficiency,  water-cooled
central air  conditioners  as a result of the  acquisition  of the  business and
operations of Quality Air, Inc. ("QAI") (see Note 17).

The Company markets its products primarily through manufacturing representatives
and  distributors  in the  Southern  U.S. and Mexico.  The Company  operates one
manufacturing  plant in Sunland Park, New Mexico and one in Westway,  Texas.  In
addition,  the  Company,  through its  subsidiary  Industrias  RTI S.A. de C.V.,
operates  a  maquiladora  manufacturing  plant in Ciudad  Juarez,  Mexico  which
performs substantially all the manufacturing of residential coolers and produces
fiberglass components for the water cooled central air conditioners.

Cash and Cash Equivalents.  Cash and cash equivalents  include all cash balances
and highly liquid debt instruments with an original  maturity of three months or
less.




                                                                      F-10


<PAGE>



Inventory. Inventory, which consists principally of coolers and air conditioners
and related  component  parts,  is stated at the lower of cost or market  value.
Cost is determined  using the average cost method.  Market value is based on the
lower of  replacement  cost or net  realizable  value.  Inventory  costs include
material, labor and manufacturing overhead.

Property, Plant and Equipment. Equipment purchased through corporate acquisition
is  recorded at the  estimated  fair  market  value at the time of  acquisition.
Property,  plant and  equipment  purchased  is  recorded  at cost.  Depreciation
expense is calculated using the  straight-line  method over the estimated useful
lives of the respective assets. The Company amortizes property under lease using
the  straight-line  method  over  the term of the  related  lease.  The  Company
capitalizes expenditures that materially increase asset useful lives and charges
ordinary maintenance and repairs to operations as incurred.

Intangible Assets. Intangible assets consist principally of patents, trademarks,
organizational costs, and goodwill.  The Company evaluates its intangible assets
to  determine  potential  impairment  by  comparing  the  carrying  value to the
undiscounted future cash flows from the related products.  Intangible assets are
amortized using the straight-line method over periods of 5 to 15 years.

Income Taxes. The Company recognizes deferred tax liabilities and assets for the
expected  future  tax  consequences  of events  that have been  recognized  in a
company's financial statements or tax returns.  Under this method,  deferred tax
liabilities  and assets  are  determined  based on the  difference  between  the
financial  statement  carrying  amounts and tax basis of assets and  liabilities
using  enacted  tax rates in effect  in the years in which the  differences  are
expected to reverse.  The Company has  provided a valuation  allowance to offset
the benefit of any net operating  loss  carryforwards  or  deductible  temporary
differences.

Revenue  Recognition.  Sales of air  conditioning  products  are  recorded  when
shipped, net of sales returns and allowances.

Environmental  Expenditures.   Environmental  expenditures  that  relate  to  an
existing  condition  caused by past  operations  and which do not  contribute to
current  or  future  revenues  are  expensed.   Liabilities  are  recorded  when
environmental  assessments and/or remediation are probable and such costs to the
Company can be reasonably estimated.

Research and Development  Costs.  Research and development costs are expensed as
incurred.  These costs  include  design,  development  of  products  through the
prototype phase and development of the related manufacturing processes.


                                                                  F-11


<PAGE>



NOTE 1.        BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
               POLICIES (CONTINUED)

Advertising Costs. The Company expenses  advertising costs as incurred.  License
rights  that are paid in  advance  are  considered  prepaid  until  the  related
advertising is aired.  Advertising costs, all of which were expensed amounted to
$173,171 in 1998 and $201,000 in 1997.

Reclassifications.  Certain  amounts in 1997 have been  reclassified  to conform
with the 1998 presentation.

Use of Estimates.  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that effect 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.


NOTE 2.        INVENTORY

Inventory at December 31, 1998 and 1997, consists of the following:

                                                                                   1998           1997

    Raw materials                                                               $  578,330         390,159
    Work-in-Process                                                                 41,790          91,448
    Finished goods                                                                 697,529       1,498,286
           Total                                                             $   1,317,649       1,979,893
                                                                             =============================

Inventory in the amount of $143,884  and  $128,804 is located in Ciudad  Juarez,
Mexico at December 31, 1998 and 1997, respectively.











                                                                   F-12


<PAGE>




NOTE 3.        PROPERTY PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following at December 31:

                                                                                 1998             1997

    Property under lease                                                 $     2,131,735         2,131,735
    Land                                                                         154,773           154,773
    Building                                                                     429,723           420,817
    Leasehold improvements                                                       330,019           294,521
    Equipment and vehicles                                                       906,825           768,568
                                                                         ---------------------------------
                                                                               3,953,075         3,770,414
    Less accumulated depreciation and amortization                            (2,165,763)       (1,868,348)
                                                                         ---------------------------------

                                                                         $     1,787,312         1,902,066
                                                                         =================================

Leasehold improvements and equipment with a cost of $285,025 are utilized at the
maquiladora plant in Ciudad Juarez, Mexico.

NOTE 4.        RELATED PARTY TRANSACTIONS

The following is a summary of balances with related parties as of December 31:

                                                                                   1998            1997
ASSETS
    Due from related parties:
        Accounts receivable, Rick Bacchus                                $         9,762                 -
        Notes receivable from officers, interest at prime
           plus 1% (8.75% at December 31, 1998) payable  monthly with  principal
           payable in five years, secured by stock in Quality Air, Inc.
               Rick Bacchus                                                       67,654            60,506
               Rockney Bacchus                                                    16,895             9,747
               Ron Bacchus                                                        16,895             9,747
                                                                         ---------------------------------
                                                                         $       111,206            80,000
                                                                         =================================

       Rick,  Rockney,  and Ron Bacchus  are  officers of the  Company.  Interest  income on these notes was $7,621 in 1998 and
       $5,085 in 1997.






                                                                    F-13


<PAGE>



LIABILITIES
    Notes payable to related parties
           Theo W. Muller, interest at 8.5% through
               January 20, 1998,  increasing to 12% through August 20, 1998, and
               to 18%  thereafter,  due in semi annual  installments of $100,000
               with balance due February 20, 2000, secured by
               patents and patents pending.  Note is past due.                        $ 588,383           543,000
           Frellum  Corporation,  interest at 8.5%  through  February  20, 1998,
               increasing to 12% through October 29, 1998, and 18% thereafter,
               unsecured.  Note is past due.                                             26,511            50,000
           Rick Bacchus, interest at 16%, payable on
               demand, unsecured.                                                        12,917                 -
                                                                                      ---------------------------------
                                                                                    $   627,811           593,000
                                                                                     =================================

Theo W. Muller is a major  shareholder of the Company and until January 1998 was
its Chairman and Chief  Executive  Officer.  Mr. Muller is also a shareholder in
Frellum  Corporation.  Interest  expense on these  notes was $82,790 in 1998 and
$41,038 in 1997.

    Due to related parties (no stated terms):

    Bacchus Industries, Inc.                                                        $   121,169            39,295

    Accrued wages payable to officers                                                    53,300                 -
                                                                                    ---------------------------------
                                                                                    $   174,469            39,295
                                                                                    =================================


















                                                                     F-14


<PAGE>



NOTE 4.        RELATED PARTY TRANSACTIONS (CONTINUED)

The Company acquired  Quality Air, Inc. on February 24, 1997.  Quality Air, Inc.
assumed the operations of Bacchus  Industries,  Inc. on January 2, 1996. Bacchus
Industries,  Inc. has common management with the Company.  Key management within
both companies includes Rick, Rockney and Ron Bacchus.

As noted in Note 11 the Company  leases its Sunland Park  facility  from Bacchus
Industries,  Inc. In addition,  when the Company  acquired Quality Air, Inc., it
did not acquire production assets,  including production  fixturing,  fiberglass
molds and other assets  necessary  for the  production  of its products that are
owned by Bacchus  Industries,  Inc. While no formal agreement  exists,  based on
preliminary  negotiations,  management  of the Company has recorded a contingent
rental fee of $189,817,  (calculated  as three  percent of related  sales) which
management  expects to pay if the assets  are not  purchased.  If the assets are
purchased, this charge will be considered depreciation expense. On September 15,
1998, a proposal was passed at the annual shareholders meeting to purchase these
assets from Bacchus  Industries,  Inc.,  in exchange  for 450,000  shares of the
Company's  common stock. As of December 31, 1998, this  transaction had not been
completed and the Company continued to accrue the contingent rental fee.

The  Company  has  also  informally  assumed,  on a  month-to-month  basis,  the
obligations  of Bacchus  Industries,  Inc.  for  equipment  leased from  another
company.  In addition to the monthly lease payment of $4,001, the lease contains
certain restrictions on sales to third parties.


NOTE 5.        ROCKAWAY INDUSTRIAL PARK

The Company owns a 248 acre parcel of land and several  buildings  (Parcel I) in
Rockaway,  New Jersey.  Parcel I is composed of two pieces, Parcel IA and Parcel
IB. Parcel IA, 47 acres,  is contiguous to the 15 acre operating  parcel that is
the site of one of its  irradiation  processing  facilities,  which is currently
leased to SteriGenics for a base annual rent of $77,400.  The agreement contains
a purchase  option under which  SteriGenics  could  purchase the property  under
lease  for  a  price  of  $405,000  through  February  26,  1998,  declining  to
approximately $138,000 on February 26, 2002. The agreement also contains a "put"
option  under which the  Company  could  require  SteriGenics  to purchase  this
property  for  approximately  $138,000  on  February  26,  2002,  if the Company
completes the required environmental remediation (see Note 10).

In January 1997 the Company entered into a 10 year lease agreement for a portion
of the property to be used for a radio tower. Minimum monthly lease payments are
$1,000, increasing by three percent each year.


                                                                     F-15


<PAGE>



NOTE 5.        ROCKAWAY INDUSTRIAL PARK (CONTINUED)

Since 1985,  the Company has been  seeking a buyer for Parcel IB;  however,  the
Company's  ability to sell Parcel IB is impaired until an environmental  cleanup
and remediation program is completed (see Note 10). This property has a net book
value of $50,000.

NOTE 6.        ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses consist of the following at December 31:
1998     1997

    Accrued payroll and payroll taxes                                        $     200,662          40,588
    Professional fees                                                               60,468          61,031
    Termination of contract                                                         75,000               -
    Other                                                                           51,078          17,973
                                                                             -----------------------------
               Total                                                         $     387,208         119,592
                                                                             =============================

Other liabilities consist of the following at December 31:
                                                                                   1998            1997
    Remedial investigation and environmental
        cleanup costs (Note 10)                                              $     927,140         962,600
    Real estate taxes on Rockaway property (Note 10)                               306,598         231,485
                                                                             -----------------------------
    Total                                                                        1,233,738       1,194,085
    Less current portion                                                          (180,000)       (180,000)
                                                                             -----------------------------
               Long-term portion                                             $   1,053,738       1,014,085
                                                                             =============================

NOTE 7. NOTES PAYABLE

Notes payable consist of the following at December 31:
1998     1997

    Promissory notes payable at 10% due
        January 22, 1999, secured by an interest
        in the Company's assets                                              $     541,502               -
    Promissory note payable at 10% due
        September 15, 1999                                                          25,000               -
    Finance agreement with financing company,
        secured by an interest in the Westway plant                                606,861               -
                                                                             -----------------------------
                                                                             $   1,173,363               -
                                                                             =============================





                                                                  F-16


<PAGE>



NOTE 7. NOTES PAYABLE (CONTINUED)

On April 22,  1998,  the Company  entered  into a bridge  financing  package for
$541,502 in the form of nine-month  promissory notes to individuals  bearing 10%
interest and five-year warrants to purchase an aggregate of 108,300.40 shares of
common stock at an exercise price of $4.50 per share for a period of five years.
The bridge  notes are secured by an interest  in the  Company's  assets with the
understanding  that should the Company  enter into a borrowing  with a financial
institution,  then the  security  interest  would be  converted  to a junior and
subordinate lien to the lien of such financial  institution.  The notes were not
paid when due on January 22, 1999.

On February 13, 1998,  the Company  entered  into a financing  agreement  with a
financing  company to finance  the  following  eligible  accounts:  Receivables,
inventory,  purchase  orders,  and future  inventory.  The  financing  agreement
includes  purchasing the eligible accounts at a purchase price equal to the face
amount of such eligible account less a discount equal to two and  three-quarters
percent of the face amount the first 30 days the eligible account is outstanding
and one percent for each additional 15 days.  Interest  expense on the financing
agreement for the year ended December 31, 1998, was $175,033.  The agreement has
an initial term which expires February 13, 2000.  Financing at December 31, 1998
related to the following:

    Accounts receivable             $      30,235
    Purchase orders                       280,568
    Inventory                             190,538
    Future inventory                      105,520
                                       -------------
                                    $     606,861
















                                                                       F- 17


<PAGE>



NOTE 8.        LONG-TERM DEBT

Long-term debt consists of the following at December 31:
                                                                                                1998              1997
    Notepayable to bank with interest at prime plus 1.75% (9.50% at December 31,
        1998) due in 120 monthly installments of $4,701, secured
        by the Westway plant and certain equipment                                          $   335,004         603,633
    Notepayable to Small Business  Administration  with interest at 5.19% due in
        120 monthly installments of $3,246, secured by Westway
        plant and certain equipment                                                             243,902               -
    Note payable to unrelated company with interest at
        10.61% due quarterly and annual principal payments
        of $41,000, secured by Rockaway property                                                287,000         287,000

    Other installment notes                                                                      11,878          21,324
                                                                                            -----------------------------
               Total long-term debt                                                             877,784         911,957
               Less current portion                                                            (667,926)       (654,613)
                                                                                            -----------------------------
                                                                                          $     209,858         257,344
                                                                                           =============================

The note payable to the bank requires the Company to maintain a current ratio of
at least 1.6 to 1, a maximum  liabilities  to total net worth ratio of 1.5 to 1,
and a debt coverage ratio of 1 to 1.25. In addition, the loan agreement does not
permit the payment of dividends until the environmental remediation requirements
of the State of New Jersey have been completed and restricts stock  transactions
of its subsidiary,  Refrigeration Technology,  Inc. As of December 31, 1998, the
Company did not meet the financial ratios  required.  The bank has not granted a
waiver for any default by the  Company;  as a result,  the note payable has been
classified as current.

The note payable to the Small Business  Administration is past due; as a result,
the note payable has been classified as current.

In connection with the Company's settlement of certain litigation (see Note 10),
New Jersey Economic Development  Authority (the Authority) bonds were cancelled,
the owner thereof  acquired for the  Authority  the Company's  note in an amount
equal to the cancelled  bonds and such owner agreed to suspend,  for a period of
five years, the Company's obligation to make principal and interest payments. As
a result,  a $287,000  obligation  was  discounted  by  $110,000  to $177,000 at
December 31, 1992.  The resulting  credit from this  discounting  was applied to
reduce the Company's net environmental clean up expense.  The debt was increased
annually by $22,000 during the five year period the Company was not obligated to
make principal and interest payments. Commencing January 1, 1998, the note bears
interest at a rate of 10.61  percent per annum and  principal  payments  will be
made in annual installments of $41,000 through

                                                                      F-18


<PAGE>



NOTE 8.        LONG-TERM DEBT (CONTINUED)

January 1, 2004.  The  Company  did not make its  scheduled  note  payments  due
January 1, 1998 and January 1, 1999.

Principal  amounts due in connection  with  long-term  debt for each of the five
years subsequent to December 31, 1998 are as follows:

                  1999      $     667,926
                  2000             45,858
                  2001             41,000
                  2002             41,000
                  2003             41,000
                  Thereafter       41,000
                                -----------
                             $    877,784

NOTE 9.        CAPITAL LEASE

The Company  acquired  computer  equipment  under the  provisions of a long-term
lease. For financial reporting purposes,  minimum lease payments relating to the
office equipment have been capitalized. The lease expires April 2001. The leased
property  under capital lease as of December 31, 1998, has a cost of $60,647 and
accumulated amortization of approximately $6,065.

The future  minimum lease payments under capital lease and the net present value
of the future minimum lease payments at December 31, 1998, are as follows:

Total minimum lease payments                                                                 $      81,255
Amount representing interest                                                                       (20,608)
                                                                                             -------------
    Presenting value of net minimum lease payments                                                  60,647

Current portion                                                                                    (19,987)
                                                                                              -------------

    Long-term capital lease obligation                                                       $      40,660
                                                                                             =============


NOTE 10.       ENVIRONMENTAL INVESTIGATION, REMEDIATION AND
               RELATED LITIGATION

As a  result  of  engineering  tests  that  commenced  in 1981,  the New  Jersey
Department  of  Environmental  Protection  (the DEP) issued a directive  in 1986
ordering  the Company and its former  Chief  Executive  Officer  (Dr.  Martin A.
Welt),  individually,   to  fund  the  cost  of  a  remedial  investigation  and
feasibility  study (the Study)  designed to  determine  the nature and extent of
contamination detected primarily on the Rockaway, New Jersey operating

                                                                   F-19


<PAGE>



NOTE 10.       ENVIRONMENTAL INVESTIGATION, REMEDIATION AND
               RELATED LITIGATION (CONTINUED)

Parcel II (see Notes 5 and 8). The Company  agreed to pay the costs of the Study
and entered into an Administrative Consent Order (ACO) with the DEP, The Company
accrued the  estimated  cost of the Study as of December 31, 1986. In accordance
with the terms of the ACO, the Company posted a $825,000  letter of credit which
was  an  amount  equal  to  the  estimated  costs  of  the  Study  and  the  DEP
administrative costs. As of December 31, 1996, all amounts due had been paid and
the letter of credit returned.

In June 1989, the DEP issued a Second  Directive  (Directive II) seeking payment
from the  Company  and the prior  owner of the  property  (the Prior  Owner) for
approximately  $1,200,000  to pay for a Phase II Remedial  Investigation  (Phase
II).  According  to  Directive  II,  both the  Company  and the Prior Owner were
jointly and severally liable for all costs to investigate and clean up hazardous
substances on the property.  The Phase II investigation  was designed to conduct
further  studies  on  Parcel  II  and  evaluate  the  nature  of and  extent  of
contamination, if any, on the 65-acre area of the property where the Prior Owner
conducted its various testing  activities.  In November 1991, the DEP issued its
"Remedial Investigation Report".

In 1989,  the  Company  filed a  lawsuit  against  the  Prior  Owner  under  the
Comprehensive Environmental Response,  Compensation and Liability Act (CERCLA or
Superfund),  seeking  contribution  for all costs  incurred  by the  Company  in
connection  with on-site  investigation  and clean up  activities.  In 1992, the
Company  released the Prior Owner from any liability under the Phase I and Phase
II investigations  and the Prior Owner paid the Company $900,000 (the Settlement
Agreement) as a partial  payment against the DEP's claims for  reimbursement  of
expenditures  for the  Phase II  investigation.  A  portion  of these  funds was
permitted  to be used to support the surface  cleanup  required by the DEP.  The
Prior Owner will only become subject to further  liability in the event that the
Company becomes unable to perform the cleanup action(s)  required by the DEP. In
addition,  the Prior Owner suspended for five years the Company's  obligation to
make principal and interest  payments on the note issued to support the purchase
of a portion of the Rockaway Industrial Park (see Notes 5 and 8).

The Company has agreed to indemnify the Prior Owner against generally all claims
for  past or  future  costs  associated  with  studies,  cleanups  and/or  other
remediation activities to the Rockaway Industrial Park. The Company has executed
a mortgage  (Mortgage) on the Rockaway Industrial Park in the amount of $900,000
securing the Prior Owner to the extent the Company does not meet its obligations
under the Settlement  Agreement.  After the  development  of an acceptable  cost
estimate for the implementation of remedial actions,  the Prior Owner has agreed
to adjust the Mortgage to the amount of the cost estimate.  If the cost estimate
exceeds the actual fair value of the mortgaged property

                                                                   F-20


<PAGE>



NOTE 10.       ENVIRONMENTAL INVESTIGATION, REMEDIATION AND
               RELATED LITIGATION (CONTINUED)

(minus any other liens on the mortgaged property), then the Company will execute
an additional mortgage for the difference which will be secured by the Company's
personal property. If the cost estimate is less than $900,000, then the Mortgage
will be reduced to the estimated amount.

In 1993 , and in conjunction with the Settlement Agreement,  the Company and the
Prior Owner entered into an Administrative  Consent Order (ACO II) with the DEP.
In accordance  with ACO II, the Company  agreed to pay DEP's  investigation  and
oversight  costs for the Phase II  investigation,  estimated to be $1.2 million,
which was charged to operations in 1992. An initial payment of $600,000 was made
in 1993 under ACO II. The  remaining  liability for the Phase II study was being
paid in  quarterly  installments  to be  completed  in June 1997.  In 1993,  the
Company  charged  approximately  $200,000 to  operations  for  additional  costs
related  to  the  Phase  II  study  and  deposited   $100,000  in  a  segregated
interest-bearing  account.  Funds in this account were  withdrawn  after certain
provisions of ACO II were met by the Company.

Both  ACO  II and  the  Settlement  Agreement  provided  that  the  Company  was
responsible for all further cleanup actions required by the DEP. Estimated costs
under ACO II and the Settlement  Agreement were recorded by the Company in 1992.
The Company and the DEP have entered into a Memorandum of Agreement  (MOA) which
stipulated  the  responsibilities  for an  approved  work  plan for the  surface
cleanup and  remediation  required to be performed  by the Company.  The Company
accrued and  charged to  operations  approximately  $200,000 in 1992 for surface
cleanup which was completed in 1994 and additional costs are not expected.

In connection  with the Phase II  investigation,  the DEP filed a First Priority
Lien  against  Parcel II and 65 acres of Parcel I. A general  lien was placed on
all  Company  properties  in the State of New  Jersey  and all  revenues  of the
Company.  Each lien was in the amount of  $329,670.  In February  1995,  the DEP
discharged all of its liens except for its liens on the revenues of the Company,
on Parcel II and on the Company's  property  located on Parcel II, and reset its
liens in the aggregate  amount of $560,490.  In August 1996,  the Company made a
payment  of  $575,000  to the DEP as full  settlement  of all  then  outstanding
financial  claims  asserted  under the ACO II, as well as all such claims  which
could be asserted for the period ended October 31, 1996,  and, as a result,  the
DEP released the lien it had placed on Parcel II.

In 1994, the DEP issued its Record of Decision (ROD) for the Rockaway Industrial
Park.  The  Company  is  required  by the  DEP to  perform  certain  groundwater
remediation  actions and implement a groundwater  monitoring program. A remedial
Action Work Plan


                                                                     F-21


<PAGE>



(RAWP) to implement the ROD was submitted by the Company in 1996.  Based on that
RAWP, the Company had accrued  approximately  $747,315 for the anticipated costs
of the groundwater programs as of December 31, 1996.

This RAWP was not  accepted by the DEP and the  Company  submitted a new plan in
1997. This plan was found acceptable to DEP, subject to certain  conditions,  in
its letter dated February 2, 1998. Based on this new RAWP, the Company increased
its accrual for anticipated  costs of groundwater  remediation to $962,600 which
resulted in an additional expense of $215,285 being recognized in 1997. The RAWP
includes the design,  construction,  operation,  monitoring, and closeout of the
groundwater remediation program over approximately a ten year period that was to
begin in 1998.  Ground  water  remediation  operations  did not begin in 1998 as
planned and have been deferred until 1999. The estimate of anticipated  costs is
based on estimated future cost which are expected to be lower than current costs
and does not include  certain  government  oversight and potential legal fees as
these cost could not be reasonably estimated. In addition, until the groundwater
remediation  operation  is  completed,  it is not  possible  to  determine  with
certainty if the remediation planned will be successful.

Parcel  II and a  portion  of  Parcel I (see  Note 5) have  been  placed  on the
National Priorities List (the List). The Company believes its ability to dispose
of Parcel I acreage will be impaired  until it has been  remediated  and removed
for the List.  Additionally,  there can be no  assurances  that the  cleanup and
remediation  efforts  provided  for by the Company will  represent  its ultimate
liability.

The Company is delinquent in the payment of local real estate taxes on 201 acres
of Parcel IB.  Accordingly,  $306,598 and $231,485  were accrued at December 31,
1998 and 1997, respectively.

Environmental accruals at December 31 are:
                                                                                  1998           1997

        Groundwater remediation                                              $     927,140     962,600


NOTE 11.       CONCENTRATIONS AND CONTINGENCIES

As the Company markets its products through distributors,  it has a small number
of  significant  customers.  For the year ended  December 31, 1998 and 1997, the
Company's five largest  customers  accounted for approximately 51 and 45 percent
of its total sales, respectively.

The Company leases it Sunland Park, New Mexico facility from Bacchus Industries,
Inc.  under a three year  operating  lease which  expires on March 1, 2000.  The
lease may be

                                                                     F-22


<PAGE>



terminated  by either party with 120 days notice.  The Company has the option to
extend this lease for an  additional  five years.  Monthly  lease  payments  are
$6,500 and the Company paid $78,000 in 1998 and $58,500 in 1997.

As a result of the Company's inability to obtain audited financial statements of
Quality Air,  Inc.  (see Note 17) for the year ended  December  31, 1996,  among
other things,  the Company is not in  compliance  with the  requirements  of the
Securities and Exchange Commission.  Until after the Company's audited financial
statements for the year ended December 31, 1998, become available and its annual
report on Form 10-KSB is filed with the Securities and Exchange  Commission,  it
will not be permitted to undertake a public offering of its securities under the
Securities Act of 1933.

The Company leases its Ciudad  Juarez,  Mexico  facility  under a  noncancelable
lease that expires on February 1, 2001.  The Company paid $106,126 on this lease
in 1998 and $61,806 in 1997. Minimum annual lease payments are as follows:

                  1999    $     112,402
                  2000          119,464
                  2001           20,112


NOTE 12.   STOCKHOLDERS' EQUITY

Common and Preferred Stock Authorized, Issued and Outstanding. On June 12, 1997,
the  Company  amended  its  Certificate  of  Incorporation  to  provide  for the
authorization  of 100,000 shares of Series B preferred  stock. The shares are to
be issued for $5.80 per share and are fully paid and non-assessable.  Dividends,
when declared by the Board of Directors,  are at $.522 per share per anum,  will
accumulate and are payable quarterly.  The stock has liquidation preference over
any other stock  issued by the Company and has voting  rights  similar to common
stockholders.  The  preferred  stock is  convertible  into two  shares of common
stock,  subject to certain  adjustments.  The Company  may redeem the  preferred
stock at any time for $10 per share  ($1,000,000  for the shares  outstanding at
December 31,  1998),  or after June 15, 1999 for $5.80  ($580,000 for the shares
outstanding  at December 31, 1998) per share if the bid price for common  shares
has equaled or exceeded $4.75 for 10 consecutive business days.

During 1997, the Company  issued 100,000 shares of the Series B preferred  stock
for $580,000, including 15,000 shares to Theo W. Muller, a major shareholder and
former CEO of the Company. The Company declared and paid $12,756 in dividends on
this stock for the  quarter  ending  September  30,  1997.  There are $12,756 in
cumulative





                                                                    F-23


<PAGE>



dividends that had not been declared as of December 31, 1997. No preferred stock
dividends  were  declared  or paid  during the year  ended  December  31,  1998.
Cumulative undeclared and unpaid preferred stock dividends at December 31, 1998,
are $64,956.  As noted in Note 8 the note payable  agreement  with the bank does
not permit the payment of additional dividends.

Also in 1997, the Company issued 145,000 shares of its common stock at $2.90 per
share to a private investor.

In March  1998,  the  Company  closed on a private  placement  of 26 units at an
offering price of $20,000 per unit of 5,000 shares of common stock,  aggregating
to  $520,000,  for a total of 130,000  shares and  warrants to  purchase  65,000
shares  of  common  stock at a price of $4.50  per share for a period of 5 years
from the closing date. Net proceeds to the Company were $446,482.

Effective   September  15,  1998,  the  Company   amended  its   Certificate  of
Incorporation  to increase the authorized  number of shares of common stock from
15,000,000 shares to 25,000,000 shares.

Stock  Authorized  but not Issued.  On  September  10,  1998,  the  shareholders
authorized  the  issuance  of 450,000  shares to  Bacchus  Industries,  Inc.  in
exchange for certain  assets.  The transaction was not completed at December 31,
1998.

Stock Options.  The Company's  1987 stock option plan (the Plan)  authorized the
issuance  of options for common  stock  until  November  30,  1997.  The options
granted were either  incentive stock options,  which are exercisable one year or
more  from the  date of  grant or  non-qualified  stock  options,  which  may be
exercisable  immediately.  Pro forma disclosure of the effects of the options in
accordance  with  SFAS  123,  have  not been  provided,  as the  effect  was not
material.  Details  of stock  option  transactions  under  the 1987  Plan are as
follows:

                                                                              Option Price
                                                               Options          Per Share       Exercisable

    Outstanding, January 1, 1997                                      -                    -
    Granted                                                       5,500            7.375
    Cancelled                                                         -                -

    Outstanding, December 31, 1997                                5,500                7.375             -
                                                                                              ============
    Granted                                                           -                -
    Cancelled                                                         -                -

    Outstanding December 31, 1998                                 5,500      $         7.375         5,500
                                                            ==============================================

                                                                     F-24


<PAGE>
Contingent Stock Options. On September 10, 1998, two sets of performance options
were granted the officers of the Company.

The first set of options  grants the  officers one option for every $3.86 of net
earnings (in a given  fiscal  year) up to a maximum of 782,000  shares of common
stock in the  event  the  Company  achieves  net  after-tax  income  of at least
$1,969,275 by December 31, 2000. No options shall be earned if the Company's net
income is less than  $1,969,275.  The options  expire after December 31, 2000 if
not earned.

The second set of options  grants the  officers  one option for every  $10.46 of
earnings (in any given fiscal year) up to a maximum of 782,000  shares of common
stock in the  event  the  Company  achieves  net  after-tax  income  of at least
$7,110,600 by December 31, 2002.

No options shall be earned if the Company's net income is less than  $7,110,600.
The options expire after December 31, 2002, if not earned.

Warrants for Common Stock.  The following  warrants are  outstanding at December
31, 1998:

           Number
          of Shares
         Covered by                 Exercise                    Date                       Date of
          Warrants                    Price                  Exercisable                 Expiration

            65,000               $    4.50                   Presently                  February 12, 2003
           108,300                    4.50                   Presently                     April 22, 2003
            50,000                    4.50                   Presently                  December 31, 2003

Each  warrant  allows the holder to  purchase  one share of common  stock at the
warrant price.

NOTE 13.       INCOME TAXES

At December 31, 1998 and 1997, the Company had deferred tax assets  amounting to
approximately $5,600,000 and $3,800,000,  respectively.  The deferred tax assets
consist  primarily of the tax benefit of net operating  loss  carryforwards  and
temporary  differences  resulting from  environmental  and property tax accruals
(see Notes 6 and 10) and are fully  offset by a valuation  allowance of the same
amount.






                                                                     F-25


<PAGE>



The net change in the valuation allowance for deferred tax assets was a increase
of  approximately  $1,800,000  and  decrease  of  $800,000  in  1998  and  1997,
respectively. The current year's net change is primarily due to the recording of
certain warranty accruals and the increase of net operating loss carryforwards.

No tax benefit is presented in the  accompanying  statements of  operations,  as
would be expected by applying the applicable U.S.  statutory  Federal income tax
rate to the pretax loss, as a result of the increase in the valuation allowance.

At December  31,  1998,  the Company had net  operating  loss  carryforwards  of
approximately  $13,000,000  available to offset future Federal  taxable  income.
These carryforwards will expire from 1999 through 2017. The deductibility of the
net operating loss carryforwards is subject to an annual limitation estimated to
be between $90,000 and $160,000.

For state income tax purposes,  primarily related to New Jersey, the Company has
net operating loss carryforwards of approximately $1,400,000,  which will expire
from 1999  through  2002.  In  addition,  the  Company  has net  operating  loss
carryforwards relating to Texas and New Mexico totaling approximately $6,100,000
that will expire in 2002 to 2003 and 2012 to 2013, respectively.


NOTE 14.       LOSS PER SHARE

Basic loss per share is  computed  by  dividing  the loss plus  preferred  stock
dividends  by the  weighted  average  number of shares  outstanding  during  the
period.  Diluted  loss per share  reflects  per share  amounts  that  would have
resulted if dilutive  potential common stock had been converted to common stock.
For 1997 and 1998,  basic and dilutive  loss per share are the same as potential
common stock is anti-dilutive.  The following reconciles amounts reported in the
financial statements:












                                                                       F-26


<PAGE>




                                                               For the year ended December 31, 1998       
                                                           Income               Shares           Per-Share
                                                         (Numerator)         (Denominator)        Amount

    Net loss                                         $     (4,492,352)                 -
    Preferred stock dividends                                 (52,200)                 -                  
                                                     -----------------------------------------------------
    Loss to common stockholders-
        basic and diluted loss per share             $     (4,544,552)         1,578,666     $       (2.88)
                                                     =====================================================

                                                               For the year ended December 31, 1997       
                                                           Income               Shares           Per-Share
                                                         (Numerator)         (Denominator)        Amount

    Net loss                                         $     (2,667,385)
    Preferred stock dividends                                 (25,512)                                    
    Loss to common stockholders-
        basic and diluted loss per share             $     (2,692,897)         1,405,749     $       (1.92)
                                                     =====================================================



As  discussed  in Note 12 and 17 the Company has  convertible  preferred  stock,
stock options and contingently  issuable shares of common stock.  This potential
common stock was not included in  computation  of diluted loss per share because
the effect of conversion would be antidilutive.

NOTE 15.       STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information are as follows:
                                                    1998            1997

    Interest paid                              $   292,510         5,251
                                               ==============================


NOTE 16.       FAIR VALUE OF FINANCIAL INSTRUMENTS

The  following  are the  carrying  amounts  and  methods  used by the Company in
estimating its fair value of financial instruments.

Cash and Cash  Equivalents.  The carrying  amounts reported in the balance sheet
approximate fair value.

Due  from  Related  Parties.  Management  estimates  the  fair  value  of  notes
receivable approximates the carrying value due to their short terms.

                                                                     F-27


<PAGE>
     Notes Payable to Related  Parties.  Management  estimates the fair value of
     notes payable approximates the carrying value due to their short terms.

     Capital Lease and Long-Term  Debt.  Management  estimates the fair value of
     capital lease obligations and notes payable approximates the carrying value
     due to their short terms and the fact that they were entered into recently.

The carrying amounts and fair values of the Company's financial  instruments are
as follows at December 31, 1998:
                                                                                                Estimated
                                                                                 Carrying         Fair
                                                                                  Amount          value

Cash and cash equivalents                                                    $       9,361            9,361
Due from related parties                                                           111,206          111,206
Notes payable                                                                    1,173,363        1,173,363
Notes payable to related parties                                                   627,811          627,811
Long-term debt and capital lease obligation                                        270,505          270,505

NOTE 17.       BUSINESS ACQUISITIONS

On February  24,  1997,  the  Company  acquired,  through its newly  established
subsidiary  Refrigeration  Technology Inc.  (RefTech),  substantially all of the
assets and assumed certain  liabilities of Quality Air, Inc. (QAI) in a business
combination accounted for as a purchase. The initial purchase price was $660,938
and  consisted  of  235,000  shares  of  the  Company's  common  stock  and  net
liabilities  of  $571,000  with  the  excess  of the  purchase  price  over  net
liabilities  allocated to  intangibles.  In addition,  the Company has agreed to
deliver to QAI an additional  100,000  shares of common  stock,  if and when the
Company's  pretax fiscal year earnings from  operations  exceed  $800,000 and an
additional  125,000  shares of common stock,  if and when such  earnings  exceed
$1,200,000  or in the  event  of an  unsolicited  bonafide  tender  offer  for a
majority of the Company's  outstanding  common stock. The additional  shares are
also  contingent  on the  earnings  levels or tender  offer  occurring  prior to
January 1, 2002.

In connection with the acquisition,  RefTech assumed QAI's purchase  commitments
for  inventories,  supplies and  services  aggregating  $1,300,000.  RefTech has
agreed  to lend  up to  $240,000  to the QAI  Principals  and has the  right  to
purchase certain equipment and vehicles  previously leased to QAI from a related
entity for an amount  equal to their fair market  value.  RefTech  entered  into
employment  agreements  with three of the QAI Principals for a five year term at
annual  compensation  of $80,000  each. In 1998,  the amounts were  increased to
$95,000.

Proforma  results for 1997 are not presented  since the  acquisition  took place
near the beginning of the year.

                                                                  F-28


<PAGE>



RefTech  also  acquired  the  outstanding  stock  of  Industrias  QAI S.A de C.V
(Industrias  QAI), a related entity in Ciudad Juarez,  Mexico, on April 14, 1997
for a nominal  amount.  Because  Industrias QAI sells only to its parent and its
costs are considered  manufacturing  costs,  it has no material  impact on total
sales or net income.

As a result of the  acquisition of RefTech and  Industrias  QAI, the Company had
the following non-cash activity in 1997:

    Assets acquired:
        Accounts receivable, net                                                          $        266,605
        Inventory                                                                                  414,049
        Fixed assets                                                                               380,556
        Intangible assets                                                                        1,248,362
        Other                                                                                      176,046
                                                                                          ----------------

                                                                                                 2,485,618
    Liabilities assumed:
        Accounts payable and accrued liabilities                                          $       (291,098)
        Notes payable to related parties                                                          (830,000)
        Note payable to the Company                                                               (690,000)
        Long-term debt                                                                             (30,206)
                                                                                          ----------------
                                                                                                (1,841,304)

    Value of common stock issued                                                                  (660,938)

    Cash acquired $                                                                                (16,624)



NOTE 18.       GOING CONCERN CONSIDERATIONS

At  December  31,  1998,  the  Company  had  recorded  a loss  for  the  year of
approximately $4,492,000 and a stockholders' deficit of $2,150,469.  The loss in
1998 was largely  attributable to certain  difficulties  introducing the AC-2 in
other  regions of the  country  which  required  the Company to  reengineer  the
product,  replace units already sold and accrue for future warranty costs.  Cash
and accounts  receivable  were  inadequate  to pay accounts  payable and accrued
expenses.  The Company does not meet certain debt covenants,  is past due on its
notes  payable  and,  if  foreclosed   upon,  could  lose  assets  required  for
operations.  In  addition,  the cooling and air  conditioner  business is highly
seasonal,  and the Company  anticipates  that  approximately  half of its annual
sales will be  obtained  during a  three-month  period from late spring to early
summer.  The Company  believes that its future success,  if any, will be largely
dependent  on its  ability to market its new  high-efficiency  water  cooled air
conditioner, of which there can be no assurance.


                                                                  F-29


<PAGE>



In addition, the Company's operating results will be significantly  dependent on
a number of factors, such as, possible new product introductions by competitors,
the  ability  to carry out its  market  plans  and meet  sales  demands  and the
Company's  dependence  on a small number of large  distributors.  These  matters
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.

Management's  plan to generate  profits and develop adequate working capital for
the  Company's  needs is as follows.  During 1999,  management  intends to focus
production  efforts  on its  Aireeze  line of  evaporative  coolers  in order to
stabilize cash flows. At the same time,  management plans to remedy the problems
with the AC-2 water cooled air  conditioner  and begin a new marketing  campaign
for the year 2000.  Based on these  efforts,  management  expects the Company to
break even in 1999. These plans include negotiating  extended payment terms with
lendors,  and for the  customer  and vendor  liabilities  along  with  obtaining
additional asset based loans.

There can be no assurance that management will reach its goals and that the plan
will be successful in generating  adequate working capital or sufficient profits
to allow the Company to continue as a going concern.


























                                                                         F-30
<PAGE>


                                     SIGNATURES



         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.



Dated:   April 12, 1999



                                                     RTI INC.



                                         By:_____________________________
                                             Rick E. Bacchus, President



         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.


Signature                               Title                        Date


_________________                      Director/CEO/CFO          April 12, 1999
Rick E. Bacchus


__________________                    Director/VP/Secretary      April 12, 1999
Rockney D. Bacchus


__________________                    Director/VP                 April 12, 1999
Ronald A. Bacchus


__________________                   Principal Accounting Officer  April 12, 1999
James Caylor


__________________                    Director                     April 12, 1999
Lanny Snodgrass

</TABLE>