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, 1997.

[  ]     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 - $3,161,861

         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 $5,184,100, based on the published sale price ($3 1/2 )
on The NASDAQ Small-Cap Market on March 23, 1998

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, 1998 - 1,606,166

Documents Incorporated by Reference:  Exhibits 3.1, 3.2, 4.1, 10.1, 10.2, 10.3, 
                                      10.4, 10.5, 10.7

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

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                                                  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 1997, 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 1997
to 1) product  development for the Company's new "AC2" central air  conditioner,
including obtaining safety and energy efficiency certifications,  2) development
of production capacity at a factory purchased and equipped for production of the
AC2 in Westway, Texas, and 3) the development 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  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,  1997 was a product  development year, and approximately
50% of the units  delivered  in 1997 are to be  replaced  in 1998 with the newer
1998  model,   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 for a nominal cost.

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,.


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         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,  RefTech purchased the business
and substantially all of the assets of QAI. QAI, commencing in January 1996, was
a  manufacturer   of  evaporative   coolers  and  commercial   heat   exchangers
manufactured  in Sunland Park,  New Mexico and,  through an  affiliated  Mexican
company,  Industries  QAI, S.A. de C.V.  ("Industries  QAI"),  in Ciudad Juarez,
Mexico.  In addition,  QAI had developed,  and done limited  manufacturing  of a
high-efficiency,  residential central air conditioner.  QAI was the successor to
certain  business  and  operations  of  Bacchus  industries,  Inc.  ("BII"),  an
affiliated company, which had been engaged in the air coolant business from 1977
until December 1995. (See "Company Products").

         In the  QAI  Transaction,  RefTech  acquired  substantially  all of the
tangible  and  intangible  assets of QAI.  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,  on February 19, 1997,  RefTech entered
into a sale and  purchase  agreement  with  Industrias  QAI and its two  nominal
shareholders,  Opal Simmons and Robert Given (the  "Industrias QAI  Agreement"),
for the business and assets of Industrias QAI, at RefTech's election at any time
on or before April 20, 1997. The  acquisition of Industrias QAI was  consummated
on April 14, 1997, for the price of 1000 Mexican pesos, or approximately $125 US
dollars,  recording  goodwill of approximately  $32,000 for the negative owners'
equity at the time of the purchase. Industrias QAI was renamed Industrias RTI in
1997.

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
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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.

         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.  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").

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.  Over 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

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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..

         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  $1.8 million during
the year ended December 31, 1997. One customer, Rocky Mountain Awning, accounted
for  approximately  27% of Aireze sales,  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.

         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

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as  increased  energy  recovery.  In 1997,  the  Company  sold the E2Pak to four
specialized  contractors,  including Spec-Air,  Trico Manufacturing,  ABB Mexico
Fans S.A. de C.V. and Cannon  Fabrication  Inc. 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 $0.28 million in 1997.

         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.

         In 1997, the Company sold the AC2 to  distributors,  who market the AC2
to  "authorized"   dealers.   In  order  to  facilitate  the  AC2  water  supply
requirement,  the Company has provided  installation classes for distributors to
train their dealers who install the units.  Sales to two  distributors,  Century
and Familian accounted for 19% and 15% of 1997 AC2 sales, respectively.

         Company  personnel  have  limited  sales,  marketing  and  distribution
experience  with  central air  conditioners.  The Company is devoting a material
portion of its available resources to the commercialization of the AC2, and this
will have a material adverse effect on the Company's financial condition, if not
successful.  While  significant  progress  was  made  in 1997  in  developing  a
distribution  network  for  the  AC2  in  the  southeast,   south  central,  and
southwestern states, the Company in 1998 will present the AC2 for its first full
season of sales in the market place.  There can be no assurance that the Company
will be  successful  in gaining  market  success  during this first full year of
production and marketing.

         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,  and the Company
does not intend to emphasize this product line.


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Marketing

         The  Company   markets  its   products   mainly   through   independent
manufacturers'  representatives  (REPS).  Working through its REPS, during 1997,
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 17, 1998, the Company employed 3
full time sales persons,  and had 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 Seasonality

         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 17, 1998, backlogs for the Aireze evaporative cooler and AC2
air conditioner were approximately $320,000, and $891,000, respectively compared
to backlogs on March 21, 1997 of approximately  $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 17,  1998,  the E2Pak  backlog  was
approximately $69,000, compared to a March 21, 1997 backlog of $160,000.

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 17,  1998,  this  facility  had a combined  production  capacity  of
approximately 120 enclosures and/or Aireze evaporative coolers per day.

         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  17,  1998,
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. Production presently is 50 units. The plant capacity
is calculated to be in excess of 200 units per

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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 1998. 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.

         While in 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.
In  addition,  since the  Company  will  manufacture  the AC2 for the first full
season this year,  there can be no assurance that unforeseen  technical or other
difficulties  will not arise which could  interfere with the manufacture of such
product.

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  and
price. 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.

         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

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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 Company has been notified by the U.S. Patent Office that a patent
has been awarded on the heat exchanger of the AC2 air conditioner,  and that the
issuance of the patent  number is imminent.  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
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.

                                                   9


<PAGE>



Employees

         As of March 17,  1998 the  Company  had 154  employees  (including  104
persons employed by Industrias RTI), of whom 129 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. (See  "Acquisition  of QAI").  Industrias  RTI, as of March 17,
1998, had 104 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 more than 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 two 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.  Mexican law also
required  certain  other  payments  to be  made to  employees  in the  event  of
dismissal without serious cause, disability or death. Mexican Industrias RTI had
taxable income in 1997 of

                                                   10


<PAGE>



892,000 pesos, or approximately $112,000.

         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.  (See
Item 3 - "Legal Proceedings").

Item 2.  Description of Properties.


                                                   11


<PAGE>



         The following sets forth, as of March 23, 1998,  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 Feet               Ownership

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
                                    Manufacturing

</TABLE>

         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 8.38% 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  2001,  at an annual rental  increasing  from  approximately
$102,500 in 1997 to  approximately  $123,500 in the fifth year of the term, plus
the amount of value-added taxes thereon.

         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.

         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

                                                   12


<PAGE>



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  $231,000  as of  December  31,  1997 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".




                                                   13


<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

                                                   14


<PAGE>



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.

         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

                                                   15


<PAGE>



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.

         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,  1997,  the Company  had accrued  $962,600  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

                                                   16


<PAGE>



NJDEP oversight  accruals will represent the Company's ultimate  liability.  See
Note 10 to Consolidated  Financial Statements included under Item 7 - "Financial
Statements."

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

         No matter was  submitted to vote of  securities  holders of the Company
during the fourth quarter of its 1997 fiscal year.


                                                   17


<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, 1997 for the  Company's  Common  Stock,  as reported by The NASDAQ
Small-Cap Market.

                                                     High Bid          Low Bid

                  1st Quarter  1996                  $2-11/16          $1-11/16
                  2nd Quarter 1996                     3-1/4             2-1/4
                  3rd Quarter 1996                     3-3/8             2-4/8
                  4th Quarter 1996                     3-7/8             3-1/4

                  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


         As of March 23, 1998, the Company had approximately 1,800 holders of
record of its Common  Stock.  During the fiscal year ended  December  31,  1997,
there were  transactions in the Company's Common Stock on  approximately  77% of
all trading days.

         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  and  March  31,  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 not yet received a response from Norwest
at this date. The Company

                                                   18


<PAGE>



cannot be assured that Norwest Bank will waive the restriction on the payment of
dividends.

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

1997 Results of Operations Compared to 1996 Results of Operations

         1997  revenues  consisted  primarily  of  cooler  and air  conditioning
business sales of $3,161,811,  interest and rental income of $45,773 and $83,611
respectively. This is compared to 1996 interest and rental income of $79,199 and
$42,930, respectively. Rental income increased due

                                                   19


<PAGE>



to the  Rockaway  property  being  leased for the full year of 1997,  but only a
partial year in 1996.  Other income in 1997  consisted of $46,179  predominantly
from a third  party  settlement,  while in 1996,  the other  income of  $580,000
represented a settlement of prior environmental insurance claims.

         In 1997, the Company  recorded cost of sales of $3,242,829 and Research
& Development expense of $774,720.  These expenses,  which may not be reflective
of  ongoing  operations,  were  the  result  of a  heavy  emphasis  in  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,  receiving  ETL and ARI
certificates in the last week of July 1997,  permitted sales to begin only as of
August 1, 1997,  which was  substantially  past the peak selling  season for air
conditioning  products.  The company  provided  facilities,  personnel and other
overheads to support higher production levels than were achieved in 1997.

         General & Administrative  (G&A) expenses were $963,817 in 1997 compared
to $217,005 in 1996.  The  increased  costs are  primarily  attributable  to the
start-up of air-cooling and air conditioning business expenses. Major components
of the air-cooling and air  conditioning  operations G&A include  administrative
salaries of $405,000,  office supplies and communications of $150,000, legal and
professional  fees  of  $89,000,  depreciation  and  amortization  of  $140,000,
transportation expenses of $52,000, and interest expense increases of $55,000.

         Selling  expenses  in  1997  were  $655,824  consisting   primarily  of
advertising of $281,000,  sales salaries of $133,000,  sales travel  expenses of
$49,000,  and $47,000 to  construct  AC2 displays  units.  There were no selling
expenses in 1996 related to the irradiation business.

         Expenses  for  Rockaway   Industrial  Park  declined  by  approximately
$12,000. Environmental investigation,  remediation and related expense decreased
from $610,559 in 1996 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 $2,667,385,  or $1.92 per share in 1997, compared to a
loss from continuing operation of $0.18 per share in 1996.

         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.

Uncertainty of Future Operating Results


                                                   20


<PAGE>



         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,  operations  were centered,  not fully on
production,  but rather on  development.  In 1997,  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 of a workforce of approximately 15 employees) in
anticipation  of full  production in 1998,  and  development  of a  distribution
network in the southeast, middle south, and southwestern regions of the US. Thus
the  results of  operations  in 1997 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;  and general
economic  conditions.  A significant  portion of the  Company's  business may be
derived  from orders  placed by a limited  number of larger  customers,  and the
timing  of such  orders  can cause  significant  fluctuations  in the  Company's
operating results.  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.

                                                   21

<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, 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"),  the information set forth herein and
in "Results of Operations" below may be of only limited analytical value:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                          1997         1996             1995

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

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

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

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

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

</TABLE>

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  decrease in cash and working
capital can be  attributed  to  assumption  of air cooling and air  conditioning
operations in 1997, including purchase of fixed assets,  operating expenses, and
research and development expenses,  offset by cash generated from operations and
financing activities.  (See Consolidated Statements of Cash Flows included under
Item 7 - "Financial Statements).

         In 1997,  the net cash used in  operating  activities  was  $2,925,540.
Investing  activities  used net cash of $986,422  primarily  for the purchase of
fixed assets of $1,250,013 and loans to related  parties of $129,857,  offset by
proceeds  received  in 1997 from the sale of  irradiation  operations.  In 1996,
investing  activities  provided net cash of $2,580,568,  mainly from the sale by
the Company of its irradiation business,  offset by purchases of fixed and other
assets and the $670,000 loan to QAI in contemplation of the QAI Transaction. Net
cash used in financing  activities in 1996 was $1,800,  (which resulted from the
sale of  preferred  stock that was  subsequently  returned to the Company in the
SteriGenics Transaction and retired) and the exercise of warrants, offset by the
repayment  of debt.  In 1997 net  cash  provided  by  financing  activities  was
$1,345,494 including proceeds from the sale of 145,000 shares of common stock of
$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

                                                   22


<PAGE>



loans totaling $593,000 were offset by the payment for the earlier $830,000 note
to related parties.

The Company had two related party notes  outstanding  at December 31, 1997,  one
for $543,000 with its former Chairman and CEO, Theo W. Muller (Muller Note), and
another for $50,000 with Frellum Corporation  (Frellum Note), which is owned 51%
by  Mr.  Muller.  These  notes,  which  were  due on  February  20,  1998,  were
renegotiated  effective February 21, 1998, for principal and accrued interest in
the amounts of $588,383, and $53,022, respectively. The terms of the Muller Note
are 12% annual interest payable quarterly, and installments of $100,000 each six
months  beginning  August 20, 1998,  until principal is fully paid. The terms of
the  Frellum  Note are 12% annual  interest,  with a payment  of $26,511  due on
August 20, 1998, and the balance along with accrued  interest due and payable on
February 20,  1999.  Should the Company  complete a private  placement of equity
securities, the Company will prepay $143,000 principal on the Muller Note but be
relieved of the first payment due August 20, 1998.  Should the Company receive a
bridge loan pursuant to a private placement of equity securities, it will prepay
principal of $26,511 plus accrued interest.

         The  Company   expects  to  fund  its  1998   operations  and  budgeted
expenditures,   including   budgeted   capital   expenditures  of  approximately
$1,300,000  and  substantial  seasonal  buildup of inventory  by (i)  forecasted
sales, (ii) working capital, (iii) available cash and cash equivalents, (iv) the
first close on a private  placement  memorandum to for  authorized  but unissued
common stock of $500,000,  with net proceeds of $460,000, (v) the negotiation of
a private placement of $1,500,000  subject to shareholder  approval,  (vi) asset
financing by RefTech,  and (vii) asset based financing line of credit  currently
under negotiation.  There is no assurance that the Company will achieve fore-
casted sales or obtain either shareholder approval for the $1.5 million private
placement, or be successfule in obtaining the desired financing.

         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
$460,000 of net proceeds were applied to the Company's general working capital.

         The Company is also contemplating,  subject to shareholder  approval, a
private placement of approximately  577,000 shares of 10% convertible  preferred
stock at a price of $2.60 per share. If  consummated,  such offering would yield
gross proceeds of approximately $1,500,000. No assurances can be given that such
offering  will be  consummated  upon such terms,  if at all. The Company is also
negotiating  with a finance  company to  establish an asset based line of credit
for up to $4,000,000  plus an additional  $500,000 for the purchase of machinery
and equipment. There is no assurance that such negotiations will be successful.

         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. However,  the Company has not obtained audited financial  statements of QAI
for 1996. The Company is presently considering whether to have QAI complete 1996
financial statements and have them audited.  However, there is no assurance that
sufficient  documentation  exists to prepare the financial  statements,  or that
such  financial  statements  are  auditable.  Such  lack  of  audited  financial
statements will prevent 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,

                                                   23


<PAGE>



1998 and the  Company has filed its 1998 Form  10-KSB  with the  Securities  and
Exchange Commission.  In addition,  since the Company was not able to obtain and
file  such  audited  financial  statements  with  the  Securities  and  Exchange
Commission  under the  Securities  Exchange Act of 1934 ("1934 Act") by no later
than May 13, 1997,  the Company  became  delinquent in its flings under the 1934
Act, the  principal  consequent  of which was that the holders of the  Company's
Common Stock, whose shares are characterized as "restricted securities" (as such
term is  defined  in Rule 144  promulgated  under the 1933  Act),  cannot  avail
themselves of certain provisions of such Rule to publicly resell such restricted
securities  until after a two-year holding period (assuming such holders are not
deemed to be affiliates of the Company).

         The  Company's   operations  conducted  at  Industrias  RTI  are  labor
intensive but, due to the prevailing wages paid 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,  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 1998.

         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.

         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. (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

                                                   24


<PAGE>



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 not yet adopted SFAS 130, Reporting Comprehensive
Income, SFAS 131, Disclosures About Segments of an Enterprise and Related Infor-
mation, or SFAS 132, Employers Disclosures about Pensions and Other Postretire-
ment Benefits which will be effective for the year ended December 31, 1998.  The
Company does not expect any 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.

         In 1997, RTI Inc. reported a change in its certifying  accountant.  The
change was not due to  disagreements  between BDO Seidman,  LLP and the Company,
but one based on geographical convenience and expense. The Company had relocated
its principal base of operations from Rockaway,  New Jersey to Sunland Park, New
Mexico.  BDO Seidman,  LLP has and had no office from which the audit work could
be accomplished  any more  inexpensively  than from its  Woodbridge,  New Jersey
office,  which both  parties  agreed  could be done on a temporary  or emergency
basis, but was not practical for the extended future. Consequently,  the Company
engaged Neff & Company, LLP, an Albuquerque, New Mexico based accounting firm, a
strong  regional  accounting  firm with  experience  in  auditing  small  public
companies.


                                                   25


<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                     44               Director, President and Chief Financial Officer

Rockney D. Bacchus                  42               Director, Vice President of Development and
                                                     Secretary

Ronald A. Bacchus                   40               Director and Vice President of Manufacturing

Dr. Lanny Snodgrass                 57               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

                                                   26


<PAGE>



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.

         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 1997, all such filing  requirements  applicable to such persons were duly
complied with.

Item 10. Executive Compensation.

         The  following  table  sets  forth the cash and cash  equivalents  paid
during the fiscal year ended  December  31, 1997 to the  Company's  Acting Chief
Executive  Officer.  No other  officer  is  compensated  at a rate in  excess of
$100,000 per year.




                                                   27


<PAGE>



                                   SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


   Name and Principal        Year                      Annual Compensation                                        long-term
        Position                                                                                                 Compensation
                                                                                                                Awards Payouts
                                              Salary          Bonus ($)      Other ($)    Restricted        Options/     LTIP   All
                                               ($)                                          Stock            SARS              OTHER
                                                                                          Awards
                                        ------------------ ---------------
Rick E.  Bacchus / CEO       1997                   80,000           3,077 (1)
(2)



</TABLE>

------------------------

(1)      Mr. Bacchus has the use of Company owned vehicle having a value of 
         approximately $3,500.

(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. The
Company's  prior  Chief  Executive  Officer,  Theo  W.  Muller,  was  paid  cash
compensation of $6,000 per year for the fiscal years ended December 31, 1996 and
1995.



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
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.

                                                   28


<PAGE>



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.



1987 Stock Option Plan

         The  Company's  1987 Stock Option Plan ("1987 Plan") was adopted by the
Board of  Directors  of the  Company on  November  4, 1987 and  approved  by the
shareholders  of the  Company  on May 25,  1988.  The  1987  Plan,  as  amended,
authorized the issuance, of options covering up to 90,625 shares of Common Stock
(subject to adjustment in certain  circumstances) to such key employees or other
individuals  (including  executive  officers and directors of and consultants to
the  Company)  who have  performed,  or  reasonably  may be expected to perform,
services of special  importance to the  management,  operation or development of
the business of the  Company.  The 1987 Plan expired by its terms on November 3,
1987 and as of December 31, 1997, had 5,500 options outstanding.



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



         As of March 25, 1998, the Company had 1,606,166  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.                           235,000 (a)               14.63%

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

Rick E. Bacchus                              84,568 (b)                5.26%
301 Antone Street
Sunland Park, NM 88063


Rockney D. Bacchus                           84,567 (c)                5.26%
301 Antone Street
Sunland Park, NM 88063


Ronald A. Bacchus                           84,566 (d)                5.26%
301 Antone Street
Sunland Park, NM 88063

                                                   29


<PAGE>



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                   291,951 (g)               18.14%
officers, as a group (four persons)


(a)  Includes  50,000  shares of Common  Stock held in escrow to cover  possible
indemnifications  claims, but excludes up to 225,000 additional shares which may
be issued to QAI if the Company achieves certain operating results. 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 approximately  33.17% of the shares of Common Stock held by
         QAI (see note (a) to this  table),  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 approximately  33.17% of the shares of Common Stock held by
         QAI (see note (a) to this  table),  4,417  shares of Common Stock and a
         Redeemable  Warrant to purchase 2,208 shares of Common Stock at a price
         of $4.50 per share expiring in March 2003.



(d)      Consists of approximately  33.17% of the shares of Common Stock held by
         QAI (see note (a) to this  table),  4,416  shares of Common Stock and a
         Redeemable  Warrant to purchase 2,208 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.

                                                   30


<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.



         As described under Item 2 - "Description of Properties', RefTech leases
its Sunland Park, New

                                                   31


<PAGE>



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  now  believes  that  it is in the
Company's  best  interest  to  purchase  such assets and plans to propose at the
Company's 1998 Annual Meeting that the Company  purchase such assets in exchange
for 350,000 shares of the Company's Common Stock.



         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.



3.       Articles of Incorporation and By-laws.



         3.1      (a)      Certificate of Incorporation, as filed by the New
                           York Department of State on August 27, 1968. (1)


(b)  Certificate of Amendment of Certificate of  Incorporation,  as filed by the
New York Department of State on December 18, 1968. (1)

(c)  Certificate  of  Change,  as filed by the New York  Department  of State on
September 28, 1970. (1)

(d)  Certificate of Amendment of Certificate of  Incorporation,  as filed by the
New York Department of State on October 15, 1971. (1)


                                                   32


<PAGE>

(e)  Certificate of Amendment of Certificate of  Incorporation,  as filed by the
New York Department of State on July 9, 1983. (1)

(f)  Certificate of Amendment to Certificate of  Incorporation,  as filed by the
New York Department of State on June 6, 1988. (2)

(g)  Certificate of Merger of Process  Technology  (NC),  Inc. into RTI Inc., as
filed by the New York Department of State on December 20, 1991. (5)

(h)  Certificate of Amendment to Certificate of  Incorporation,  as filed by the
New York Department of State on May 25, 1995. (8)

(i)  Certificate of Amendment to Certificate of  Incorporation,  as filed by the
New York Department of State on February 27, 1996. (9)

(j)  Certificate of Amendment to Certificate of  Incorporation,  as filed by the
New York Department of State on June 13, 1997

         3.2      (a)      By-laws, as in effect on February 16, 1997. (7)

(b)  Amendment of Sections 5.6 and 5.7 of the  By-Laws,  effective  February 17,
1997. (11)


4. Instruments defining the rights of security holders, including indentures.


         4.1               Form of Common Stock certificate. (1)

        4.2               Form of Preferred Stock certificate

         4.3               Form of Redeemable Warrant


10.      Material contracts.

10.1 (a)  Administration  Consent  Order in the Matter of Radiation  Technology,
Inc.,  dated  March  10,  1987,  of  the  State  of  New  Jersey  Department  of
Environmental Protection Division of Hazardous Waste Management. (1)


                                                   33


<PAGE>



(b) Directive II, dated June 30, 1989,  from the State of New Jersey  Department
of Environmental  Protection in the Matter of the Radiation  Technology Site and
Morton Thiokol, Inc. and RTI Inc. respondents. (4)


(c) (i)  Administrative  Consent Order,  dated December 7, 1992, of the State of
New Jersey  Department of Environmental  Protection and Energy, in the Matter of
RTI Inc. Site, RTI Inc. and Thiokol Corporation. (6)


                  (c)      (ii) Amendment to Administrative Consent Order, dated
                           August 2, 1994, of the State of New Jersey Department
                           of Environmental Protection and Energy.
                           (7)


                  (d)      Record   of   Decision   -    Radiation    Technology
                           Incorporated (RTI) with respect to a site in Rockaway
                           Township,  Morris County, New Jersey,  issued in 1994
                           by  the  New  Jersey   Department  of   Environmental
                           Protection and Energy. (7)


10.2 (a)  Credit  Agreement,  dated as of  December  1,  1978,  among New Jersey
Economic  Development  Authority,  Radiation  Technology,  Inc.  and New  Jersey
National Bank. (1)

(b) Bond  Purchase  Agreement,  dated as of December  1, 1978,  among New Jersey
Economic  Development   Authority,   Radiation  Technology,   Inc.  and  Thiokol
Corporation. (1)

(c) Promissory Note, dated December 14, 1978, from Radiation Technology, Inc. to
New Jersey Economic  Development  Authority in the principal amount of $820,000.
(1)

(d) Mortgage,  dated December 14, 1978, between Radiation  Technology,  Inc. and
New Jersey Economic Development Authority. (1)

(e)  Assignment of Leases and Rents,  dated  December 14, 1978,  from  Radiation
Technology, Inc. (1)

(f) Settlement Agreement,  dated December 18, 1992, between RTI Inc. and Thiokol
Corporation. (6)

(g) Mortgage, dated December 18, 1992, between RTI Inc. and Thiokol Corporation.
(6)

                                                   34


<PAGE>

(h)  Escrow  Agreement,   dated  January  18,  1993,  among  RTI  Inc.,  Thiokol
Corporation and Archer & Greiner, a Professional Corporation. (6)

(i)  Assignment  of  Mortgage,  Note,  Assignment  of Leases and  Rents,  Credit
Agreement and Pledge of Revenues, dated January 29, 1993, by New Jersey National
Bank. (6)

10.3 (a)  Administrative  Order of the United  States  Environmental  Protection
Agency (Index No. II- CERCLA-94-0  124),  dated August 9, 1994, In the Matter of
the Nascolite Corporation Site. (7)

(b) Nascolite  Corporation  Superfund Site Tolling Agreement,  dated February 2,
1995, between the United States of America and RTI Inc. (7)

(c) Partial Consent Decree in the Matter of United States of America, plaintiff,
v.  American  Optical  Company,  B.  Jadow  and  Sons,  Inc.,   Bethlehem  Steel
Corporation, CPS Chemical Company, Inc., Cyro Industries Inc., Cytec Industries,
Dentsply  International,  Inc.,  E.I.  DuPont de Nemours & Co.,  and RTI,  inc.,
defendants.


10.4 (a) Asset  Acquisition  Agreement,  dated as of February 26, 1996,  between
SteriGenics International and RTI Inc. (9)

(b) Lease Agreement between SteriGenics International and RTI Inc. (10)


10.5  (a)  Acquisition  Agreement,   dated  February  24,  1997,  by  and  among
Refrigeration  Technology,  Inc.,  Quality Air, Inc., Margie J. Bacchus,  Philis
Bacchus, Rick E. Bacchus, Rockney D. Bacchus, Ron Bacchus and Opal Simmons. (11)

(b) Escrow Agreement,  dated as of February 24, 1997, by and among Refrigeration
Technology,  Inc., Quality Air, Inc., Margie J. Bacchus, Philis Bacchus, Rick E.
Bacchus,  Rockney D. Bacchus, Ron Bacchus and Opal Simmons, and Warshaw Burstein
Cohen Schlesinger & Kuh, LLP, as escrow agent (11)

(c) Lease,  dated  February , 1997,  between  Stanley Jobe and Quality Air, Inc.
and/or assigns. (11)

(d)  Employment  Agreement,  dated  February  24,  1997,  between  Refrigeration
Technology, Inc. and Rick E. Bacchus. (11)

                                                   35


<PAGE>

(e)  Employment  Agreement,  dated  February  24,  1997,  between  Refrigeration
Technology, Inc. and Rockney D. Bacchus. (11)

(f)  Employment  Agreement,  dated  February  24,  1997,  between  Refrigeration
Technology, Inc. and Ron Bacchus.(1 1)

(g)  Conditional  Sale and Purchase  Agreement,  dated February 19, 1997, by and
between Industrias Q.A.I., S.A. de C.V., Opal Elizabeth Simmons Wheeler,  Robert
Harvey Given Trackman and Refrigeration Technology, Inc. (11)

(h) Contract of Lease,  dated February 1, 1996, between Polifibras de Chihuahua,
S.A. de C.V. and Industrias Q.A.I., S.A. de C.V.

(i) Revolving  Credit Note,  dated December 2, 1996, in the principal  aggregate
amount of $720,000, between RTI, Inc. and Quality Air, Inc. (11)

(j) Form of  Promissory  Note from Quality  Air,  Inc. to Theo W. Muller and his
assigns. (11)

(k) Contract of Sale, dated February 11, 1997,  between Quality Air, Inc. and/or
assigns and Stanley P. Jobe. (12)

(l) Sales Agreement and Lease (Invoice #028019), dated October 21, 1994, between
Bacchus Industries Inc. and Spec-Air. (12)

(m)  Lease of Real  Property;  Improvements;  Other  Assets;  and  Miscellaneous
Respective  Agreements,  dated March 13, 1997, between Bacchus Industries,  Inc.
and Refrigeration Technology, Inc. (12)


10.6 (a) Promissory  Note,  dated January 12, 1998, from Rick Bacchus and Philis
Bacchus to Refrigeration Technology Inc. in the principal amount of $60,506.

(b) Promissory Note, dated January 12, 1998, from Rocky Bacchus to Refrigeration
Technology Inc. in the principal amount of $9,747.

         (c)      Promissory  Note,  dated January 12, 1998, from Ronald Bacchus
                  to  Refrigeration  Technology Inc. in the principal  amount of
                  $9,747.

         (d)      Loan  Agreement  dated  October 8, 1997 between  Refrigeration
                  Technology,  Inc. and Norwest Bank in the principal  amount of
                  up to $600,000.

(e)  Authorization  for  Debenture  Guarantee  504 Program  dated August 7,1 997
between   Refrigeration   Technology,   Inc.   and  the  U.S.   Small   Business
Administration in the amount of $261,000.

    10.7     (a)      1987 Stock Option Plan of Radiation Technology, Inc. (3)

11.      Statement re  computation  of per share  earnings - not required  since
         such computation can be determined  clearly from the material contained
         in this Annual Report on Form l0-KSB.

21.      Subsidiaries of the small business issuer.

         23.1     Consent of Neff & Company, LLP

         23.2     Consent of BDO Seidman, LLP.

27.      Financial Data Schedule

(1)  Incorporated  by  reference;  filed as an Exhibit to the  Company's  Annual
Report on Form 10-KSB for its fiscal year ended December 31. 1986.

(2)      Incorporated  by  reference;  filed  as an  Exhibit  to  the  Company's
         Quarterly  Report on Form 10-Q for its fiscal  quarter ended  September
         30, 1987.

(3)      Incorporated by reference;  filed as an Exhibit to the Company's Annual
         Report on Form 10-K for its fiscal year ended December 31, 1987.


(4)      Incorporated  by  reference;  filed  as an  Exhibit  to  the  Company's
         Quarterly  Report on Form 10-Q for its  fiscal  quarter  ended June 30.
         1989.


(5)      Incorporated by reference;  filed as an Exhibit to the Company's Annual
         Report on Form 10-K for its fiscal year ended December 31, 1991.


(6)      Incorporated by reference;  filed as an Exhibit to the Company's Annual
         Report on Form 10-KSB for its fiscal year ended December 31, 1992.


(7)      Incorporated by reference;  filed as an Exhibit to the Company's Annual
         Report on Form l0-KSB for its fiscal year ended December 31, 1994.

                                                   36


<PAGE>



(8)      Incorporated  by  reference;  filed  as an  Exhibit  to  the  Company's
         Quarterly  Report on Form 10-QSB for its fiscal  quarter ended June 30,
         1995.


(9)      Incorporated by reference;  filed as an Exhibit to the Company's Annual
         Report on Form 10-KSB for its fiscal year ended December 31, 1995.


(10)     Incorporated by reference; filed as an Exhibit to the Company's Current
         Report on Form 8-K, dated August 23, 1996.


(11)     Incorporated by reference; filed as an Exhibit to the Company's Current
         Report on Form 8-K, dated March 6, 1997.

(12)     Incorporated by reference;  filed as an Exhibit to the Company's Annual
         Report on Form 10-KSB for its fiscal year ended December 31, 1996

                                                   37


<PAGE>
                                RTI Inc. and Subsidiaries

                                        CONTENTS

                                               Page 

INDEPENDENT AUDITORS' REPORT                         1
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS             3
FINANCIAL STATEMENTS                    

 Consolidated Balance Sheets                         4
 Consolidated Statements of Operations               6
 Consolidated Statements of Stockholders' Equity     7
 Consolidated Statements of Cash Flows               9
 Notes to Consolidated Financial Statements          11


<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, 1997, 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.

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.

As discussed in Note 6 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 7 and 10 to the  consolidated  financial  statements,  the
Company  owns  property   which  is  the  subject  of   continuing   significant
environmental investigation and remediation.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of RTI Inc.  and
subsidiaries at December 31, 1997, and the results of their operations and their
cash  flows  for the year  then  ended in  conformity  with  generally  accepted
accounting principles.


                                                                    F-1


<PAGE>



Board of Directors and Stockholders of
RTI Inc. and Subsidiaries




The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 6 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  and has current  liabilities  in
excess of current assets available for payment.  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
March 2, 1998

                                      F-2
<PAGE>
Independent Auditors' Report


Board of Directors and Stockholders
RTI Inc.
Rockaway, New Jersey

We have  audited the  accompanying  consolidated  balance sheet of RTI Inc. and
subsidiaries as of December 31, 1996, and the related consolidated statements 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.

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.

As  discussed in Notes 5 and 8 to the  consolidated  financial  statements,  the
Company  owns  property   which  is  the  subject  of   continuing   significant
environmental investigation and remediation.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of RTI Inc. and
subsidiaries as December 31, 1996, and the results of their operations and their
cash  flows  for the year  then  ended in  conformity  with  generally  accepted
accounting principles.

 BDO Seidman, LLP

Woodbridge, New Jersey
March 20, 1997


                                                                  F-3

<PAGE>
RTI INC. AND SUBSIDIARIES
                                                                           
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


ASSETS

                                                        1997              1996

CURRENT ASSETS
    Cash and cash equivalents                $        11,712      $   2,578,180
    Accounts receivable, net of allowance
        of $                                         234,993                 -
    Inventory (Note 3)                             1,979,893                 -
    Prepaid expenses and other                       163,357            27,760
    Escrow deposit (Note 1)                                -           407,944
    Certificate of financial assurance -
        restricted (Note 4)                                -            75,000

               Total current assets                 2,389,955         3,088,884

PROPERTY, PLANT AND EQUIPMENT,
    net (Notes 5, 7, and 9)                         1,902,066           476,235

NOTE RECEIVABLE (Note 17)                                   -           670,000

DUE FROM RELATED PARTIES (Note 6)                      135,605                -

INTANGIBLE ASSETS, net of accumulated
        amortization of $72,353 in 1997                  1,204,193            -

OTHER ASSETS                                                38,111        9,565






               Total assets                    $     5,669,930      $ 4,244,684
                                                ==============        =========

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

</TABLE>
                                     F-4

<PAGE>
                                                                   
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                      1997              1996

CURRENT LIABILITIES
    Notes payable to related parties (Note 6) $       593,000             -
    Due to related parties (Note 6)                    94,900             -
    Accounts payable                                  796,521          $19,811
    Accrued expenses (Note 8)                         133,886           74,433
    Accrued interest                                   49,780              -
    Other current liabilities (Notes 8 and 10)        180,000              -
    Current portion of long-term debt (Note 9)        654,613              -

               Total current liabilities            2,502,700            94,244

LONG-TERM DEBT, net of $22,000
    discount in 1996 (Note 9)                        257,344           265,000

OTHER LIABILITIES (Notes 8 and 10)                  1,014,085          970,935

               Total liabilities                    3,774,129         1,330,179

COMMITMENTS AND CONTINGENCIES
    (Notes 6, 7, 9, 10, and 11)

STOCKHOLDERS' EQUITY (Note 12)
    Preferred stock, $.05 par value - shares
        authorized 2,000,000; shares issued
        and outstanding 100,000 in 1997               5,000                 -
    Common stock; $.08 par value - shares
        authorized 15,000,000, issued and
        outstanding 1,481,166 in 1997 and
        1,101,166 in 1996                             118,494            88,094
    Additional paid-in capital                     17,679,579        16,053,542
    Accumulated deficit                           (15,907,272)      (13,227,131)

   Total stockholders' equity                        1,895,801         2,914,505

   Total liabilities and stockholders' equity$       5,669,930        $4,244,684
                                                 =============         =========

                                                          F-5

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
RTI INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
                                                      1997       1996
Net sales                                        $3,161,861         -
Cost of sales                                     3,242,829         -
    Gross margin                                    (80,968 )       -

Selling expenses                                    655,824         -
General and administrative expenses                 963,837       $217,005
Research and development expenses                   774,720         -
               Total operating expenses           2,394,381       217,005
               Loss from operations              (2,475,349)     (217,005)

Other income (expense)
    Interest income                                 45,973            79,199
    Rental income                                   83,611            42,930
    Expenses of Rockaway Industrial Park,
        including interest expense of $22,000
        in both years (Notes 7 and 9)             (62,913)          (75,505)
    Environmental investigation, remediation
        and related legal expenses (Note 10)     (249,855)          (610,559)
    Interest expense                              (55,031)                -
    Other income (Note 13)                         46,179           580,000
               Total other income (expenses)     (192,036)           16,065

               Loss from continuing operations (2,667,385)         (200,940)

Discontinued operations (Note 2)
    Loss from irradiation operations                    -           (72,000)
    Loss on disposal of irradiation operations          -           (24,242)
               Net loss before income taxes     (2,667,385)         (297,182)

Income taxes (Note 14)                                                     -                 -
Net loss                                        (2,667,385)         (297,182)
Net loss per share
    Loss from continuing operations                (1.92)             (.18)
    Loss from irradiation operations                   -              (.07)
    Loss on disposal of irradiation operations         -              (.02)

Basic and diluted net loss per share         $     (1.92)           $  (.27)
               Weighted average number of
                  common shares outstanding     1,405,749         1,090,627

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

</TABLE>

                                       F-6

<PAGE>
CONSOLIDATED  STATEMENTS OF STOCKHOLDERS' EQUITY For the Year Ended December 31,
1997 and 1996
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>



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

Balance, January 1, 1996                                   -  $           -      1,076,907   $      86,153

Purchase of partial shares                                 -              -           (741)            (59)

Exercise of warrants                                       -              -         25,000           2,000

Sale of preferred stock                              118,000          5,900              -               -

Preferred stock cancelled in
    connection with sale (Note 12)                  (118,000)        (5,900)             -               -

Net loss                                                   -              -              -               -

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


The Notes to Financial  Statements  are an integral  part of these  consolidated
statements.
</TABLE>
                                          F-7


<PAGE>

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

                       Additional
                         Paid-in        Accumulated
                         Capital          Deficit              Total

                     $    16,013,851    $(12,929,949)        $3,170,055

                              (2,059)               -            (2,118)

                              41,750                -            43,750

                             230,100                -           236,000


                            (230,100)               -          (236,000)

                                   -         (297,182)         (297,182)

                          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


</TABLE>
                                             F-8
<PAGE>
RTI INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>



                                                        1997              1996

CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                 $    (2,667,385)         $(297,182)
    Adjustments to reconcile net loss to net cash
     applied to operating activities:
     Depreciation and amortization                     277,091          529,276
     Write-down of other assets                     -                    60,000
     Imputed interest on note payable                  22,000            22,000
     Loss on sale of irradiation operations              -               24,242
     (Increase) decrease in:
     Accounts receivable                                31,612            1,832
     Inventory                                      (1,565,844)                -
     Certificate of financial assurance - restricted    75,000           75,000
     Prepaid expenses and other                        (10,909)         (21,863)
             Restricted deposits                            -            15,771
           Increase (decrease) in:
               Due to related parties                  94,900                 -
               Accounts payable                       485,612           (54,254)
               Accrued expenses                       109,233          (320,172)
               Other liabilities                      223,150          (112,869)
                  Total adjustments                  (258,155)          218,963

            Net cash applied to operating activities (2,925,540)        (78,219)


CASH FLOWS FROM INVESTING ACTIVITIES
    Sale of irradiation operations                    407,944         3,975,781
    Purchases of fixed assets                      (1,250,013)         (634,971)
    Purchase of intangible assets                    (28,184)                -
    Purchases of other assets                         (2,936)          (90,242)
    Cash purchased with business
        acquisitions (Note 17)                        16,624                 -
    Loans and related party receivables             (129,857)         (670,000)
               Net cash (applied to) provided by
                  investing activities               (986,422)        2,580,568


The Notes to Financial  Statements  are an integral  part of these  consolidated
statements.
</TABLE>
                                     F-9

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

CONSOLIDATED  STATEMENTS OF CASH FLOWS  (CONTINUED) For the Years Ended December
31, 1997 and 1996



                                                   1997              1996

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from the sale of common stock      420,500                 -
    Proceeds from the sale of preferred stock   580,000                 -
    Proceeds from notes payable                 603,633                 -
    Proceeds from related party notes           593,000                 -
    Payments on long-term debt                  (8,882)         (279,432)
    Payments on related party notes           (830,000)                -
    Payment of dividends                       (12,757)                -
    Proceeds from exercise of warrant               -            43,750
    Payments for partial shares of common stock     -            (2,118)
    Proceeds from exercise of preferred stock       -           236,000
               Net cash provided by (applied to)
                  financing activities      1,345,494            (1,800)

Net increase (decrease) in cash and
    cash equivalents                       (2,566,468    )     2,500,549

Cash and cash equivalents, beginning
 of year                                    2,578,180            77,631

Cash and cash equivalents, end of year     $   11,712         $2,578,180


The Notes to Financial  Statements  are an integral  part of these  consolidated
statements.
</TABLE>
                                       F-10

<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997

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.

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.

                                      F-11
<PAGE>
NOTE 1.        BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
               POLICIES (CONTINUED)

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  accounts  for its income taxes in  accordance  with
Financial  Accounting  Standards  Statement No. 109, Accounting for Income Taxes
(SFAS 109).  SFAS 109 requires a company to recognize  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.

Notes  Payable and Long-Term  Debt.  The recorded  value of the Company's  notes
payable and long-term  debt  approximates  fair value based on the current rates
available to the Company for debt of the same remaining maturities.

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-12

<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 in 1997,
amounted to $201,000.

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.

Long-Lived  Assets.   Statement  of  Financial  Accounting  Standards  No.  121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
be  Disposed  of (SFAS  121),  was  adopted  as of  January  1,  1996.  SFAS 121
standardized  the accounting  practices for the  recognition  and measurement of
impairment losses on certain  long-lived assets. The adoption of SFAS 121 had no
effect on the results of operations or financial position.

Effect of New Accounting Pronouncements.  Effective January 1, 1996, the Company
adopted  SFAS No. 123,  Accounting  for  Stock-Based  Compensation.  The Company
adopted this  pronouncement  by making the  required  pro forma note  disclosure
only.  Accordingly,  the  adoption of SFAS No. 123 did not impact the  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. This pronouncement was adopted for both 1997 and
1996, however, there was no impact on the loss per share previously reported for
1996.

Reclassification.  Certain  items in the 1996  financial  statements  have  been
reclassified to conform to the 1997 presentation.

NOTE 2.        DISCONTINUED OPERATIONS

On February 26, 1996, the Company  entered into an asset  acquisition  agreement
with  SteriGenics.  In  connection  with this  agreement,  the  Company  sold to
SteriGenics  substantially  all of the assets and  SteriGenics  assumed  certain
liabilities  for  an  aggregate  purchase  price  of  $4,601,725.  As a  result,
consolidated  financial statements for 1996 give effect to the classification of
the irradiation operations as discontinued operations.
The sale, which was completed on August 8, 1996, resulted in a $24,242 loss.

                                      F-13
<PAGE>
NOTE 2.        DISCONTINUED OPERATIONS (CONTINUED)

The land and  fixed  assets  of the New  Jersey  location  are  being  leased to
SteriGenics  for a base annual rent of $77,400.  The sale  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 sale  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).

Operating  results of the  irradiation  operations  for 1996 are  summarized  as
follows:

    Revenues                                                      $  2,684,565
    Operating loss                                                     (72,000)
    Net loss                                                           (72,000)


NOTE 3.        INVENTORY

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

    Raw materials                                                   $   390,159
    Work-in-Process                                                      91,448
    Finished goods                                                    1,498,286

           Total                                                  $   1,979,893

Inventory in the amount of $128,804 is located in Ciudad Juarez, Mexico.

NOTE 4.        CERTIFICATES OF FINANCIAL ASSURANCE

During  1990 and 1994,  the  Company  was  required  by the  Nuclear  Regulatory
Commission  (NRC) to post $75,000  Certificates of Financial  Assurance (CFA) in
accordance  with NRC  regulations  applicable  to  companies  with  similar  NRC
licenses.  The CFA was  intended  to  provide  assurance  that  funds  would  be
available if needed for decommissioning activities and removal of Cobalt 60 used
in the former irradiation operation.  The Company had elected to use trust funds
to provide such  financial  assurance.  The funds were on deposit in  restricted
bank accounts.  During 1996, the NRC released one CFA and the other was released
in February 1997.

                                          F-14

<PAGE>
NOTE 5.        PROPERTY PLANT AND EQUIPMENT

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

                                                      1997             1996

    Property under lease                      $     2,131,735         2,131,735
    Land                                              154,773                 -
    Building                                          420,817                 -
    Leasehold improvements                            294,521                 -
    Equipment and vehicles                            768,568                 -
                                                    3,770,414         2,131,735
    Less accumulated depreciation
    and amortization                               (1,868,348)       (1,655,500)
                                               ---------------       ----------
                                              $     1,902,066           476,235
                                              ===============        ==========
Leasehold improvements and equipment with a cost of $285,025 are utilized at the
maquiladora plant in Ciudad Juarez, Mexico.

NOTE 6.        RELATED PARTY TRANSACTIONS

The following is a summary of balances  with related  parties as of December 31,
1997:

ASSETS
    Due from related parties:
        Bacchus Industries, Inc.                                      $ 55,605
Notes receivable from officers, interest at prime
plus 1% (8.75% at December 31, 1997) payable  monthly with  principal
payable in five years, secured by stock in Quality Air, Inc.
               Rick Bacchus                                              60,506
               Rockney Bacchus                                            9,747
               Ron Bacchus                                                9,747
                                                                 --------------
                                                              $        135,605
                                                               ================ 
LIABILITIES
    Notes payable to related parties, interest at 8.5% due
        February 20, 1998, unsecured
           Theo W. Muller                                     $        543,000
           Frellum Corporation                                          50,000
                                                               ----------------
                                                               $        593,000
                                                               ================



                                  F-15
<PAGE>

NOTE 6.        RELATED PARTY TRANSACTIONS (CONTINUED)

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 $41,038 in 1997. The
Company is in the process of negotiating the extension of these notes payable.

    Due to related parties:
        Contingent liability due to Bacchus Industries, Inc.            $94,900

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 $94,900,  (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.

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


NOTE 7.        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.  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.

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 8). This property has a net book
value of $50,000.

                                        F-16

<PAGE>
NOTE 8.        ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses consist of the following at December 31:

                                                         1997            1996
    Remedial investigation and environmental
        cleanup costs (Note 10)                         $   -           7,749
    Accrued payroll and payroll taxes                   40,588               -
    Professional fees                                   61,031          51,625
    Accrued warranty                                    14,294               -
    Other                                               17,973          15,059
                                                        ------         --------
Total                                            $     133,886          74,433
                                                 =============         =======
Other liabilities consist of the following at December 31:
                                                         1997            1996
    Remedial investigation and environmental
        cleanup costs - non-current (Note 10)         $ 962,600         747,315
    Real estate taxes on Rockaway property (Note 10)    231,485         191,373
    Environmental proceedings (Note 10)                     -            32,247
    Long-term portion                                 1,194,085         970,935
    Less current portion                               (180,000)              -
                                                      ---------         --------
               Total                                $ 1,014,085         970,935
                                                    ===========         =======

NOTE 9.        LONG-TERM DEBT

Long-term debt consists of the following at December 31:
                                                        1997              1996
 Notepayable to bank with  interest at prime
 plus 1.75% (9.25 at December 31,
 1997)  subsequently  converted  to a note 
 payable  due  in 120  monthly installments
 of $8,233, secured by the Westway plant and
 certain equipment                                  $  603,633               -

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         265,000

    Other installment notes                             21,324               -
                                                       --------          -------
               Total long-term debt                    911,957         265,000
               Less current portion                   (654,613)              -
                                                       --------        --------
                                                     $ 257,344         265,000
                                                     =========         ========

                                    F-17
<PAGE>
NOTE 9.        LONG-TERM DEBT (CONTINUED)

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, 1997, 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. 

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 will be
increased  annually  by $22,000  during the five year  period the Company is not
obligated to make principal and interest  payments.  Commencing January 1, 1998,
the note will bear  interest at a rate of 10.61  percent per annum and principal
payments will be made in annual installments of $41,000 through January 1, 2004.
The Company did not make its scheduled note payment due January 1, 1998.

Principal  amounts due in connection  with  long-term  debt for each of the five
years subsequent to December 31, 1997 are as follows:

                  1998                  $     654,613 
                  1999                         47,506
                  2000                         45,838
                  2001                         41,000
                  2002                         41,000
                  Thereafter                   82,000
                                         -------------
                                        $     911,957
                                        ==============

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 Parcel II
(see Note 7). 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
                                   F-18
<PAGE>
NOTE 10.       ENVIRONMENTAL INVESTIGATION, REMEDIATION AND
               RELATED LITIGATION (CONTINUED)

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 Note 7).

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  (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.

                                  F-19
<PAGE>
NOTE 10.       ENVIRONMENTAL INVESTIGATION, REMEDIATION AND
               RELATED LITIGATION (CONTINUED)

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 (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.  The RAWP
includes the
                                     F-20
<PAGE>
NOTE 10.       ENVIRONMENTAL INVESTIGATION, REMEDIATION AND
               RELATED LITIGATION (CONTINUED)

design,  construction,  operation,  monitoring,  and closeout of the groundwater
remediation  program  over  approximately  a ten year  period.  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 7) 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
from 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,  $231,485 and $191,373  were accrued at December 31,
1997 and 1996, respectively.

In addition,  in 1994,  the Company was named a respondent  in an  environmental
proceeding relating to a disposal site, which the Company shipped a small amount
of material  during 1982.  The Company has recorded an accrual for the estimated
liability of $32,247 as of December 31, 1996 which it paid in 1997. The Company,
based upon all  available  information,  is of the  opinion  that the accrual is
adequate and that the ultimate disposition of this environmental proceeding will
not have a material adverse effect on these financial statements.

Environmental accruals at December 31, 1997 are:
                                                      1997           1996

        Groundwater remediation               $     962,600         747,315
        Nascolite site                                    -          32,247
                                              -----------------     -------- 
               Total liability                $     962,600         779,562
                                              ==================    ======== 

                                     F-21
<PAGE>
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, 1997, the Company's
five  largest  customers  accounted  for  approximately  45 percent of its total
sales. In addition, 6 percent of its sales were to Mexican distributors.

The Company has an agreement to purchase  celebrity license rights over the next
two years at $36,000 per year. This contract is currently in dispute.

The Company has received a letter from NASDAQ  stating that it believed that RTI
did not meet the new minimum net  tangible  assets  requirements  for  continued
listing on the NASDAQ Small Cap Market which went into effect February 23, 1998.
The Company has elected to receive an expedited,  written  hearing in accordance
with NASDAQ rules.  The ultimate outcome of the hearing is not known, nor is the
impact of having  its common  stock  delisted  from the NASDAQ  Small Cap Market
known, should the Company be delisted.

As a result of the Company's inability to obtain audited financial statements of
Quality Air, Inc. (See Note 7) 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 it Sunland Park facility from Bacchus Industries,  Inc. under
a three year  operating  lease which expires on March 1, 2000.  The lease may be
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 $58,500 in 1997.

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

                  1998         $     106,126
                  1999               112,402
                  2000               119,464
                  2001                20,112

In February 1998, the Company entered into an agreement to factor up to $500,000
of its  receivables  at the  rate of 2.75  percent  for the  first 30 days and 1
percent for each subsequent 15 days.

                                 F-22

<PAGE>
NOTE 12.       STOCKHOLDERS' EQUITY

Common and Preferred Stock Authorized, Issued and Outstanding. Effective May 25,
1995, the Company's Certificate of Incorporation was amended to effect a one for
eight  reverse  stock split of common stock and  authorize  2,000,000  shares of
preferred  stock. In connection with the  SteriGenics  transaction,  the Company
sold SteriGenics,  on March 11, 1996, 118,000 shares of Series A Preferred Stock
for $236,000 in cash. The preferred  stock was surrendered on August 8, 1996, in
payment of a portion of the purchase price.

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,  1997),  or after June 15, 1999 for $5.80
($580,000 for the shares  outstanding at December 31, 1997) 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
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
dividends that had not been declared as of December 31, 1997. As noted in Note 9
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.

Stock Options.  The Company's  1987 stock option plan (the Plan)  authorized the
issuance  of options for common  stock  until  November  31,  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
                                             F-23
<PAGE>
NOTE 12.       STOCKHOLDERS' EQUITY (CONTINUED)

provided,  as the effect was not material.  Details of stock option transactions
under the 1987 Plan for the two years are as follows:
                                                     Range of
                                                   Option Price
                                   Options          Per Share       Exercisable

Outstanding, January 1, 1996         4,936      $     4.00-7.76         3.686
    Granted                            -                -                -
    Cancelled                       (4,936    )       4.00-7.76          -

Outstanding, December 31, 1996         -                -                -
    Granted                          5,500            7.375              -
    Cancelled                          -                -                -
                                     -------    ------------           -------
Outstanding December 31, 1997        5,500      $     7.375              -
                                    ========     ==========            ========

NOTE 13.       OTHER INCOME

Executive  Termination  Agreements  and  Litigation.  The Company and its former
Chief Executive  Officer (CEO), had been in litigation since 1987,  arising from
the  Company  failing  to pay  the  CEO  under a  consulting  agreement  and the
Company's claims against the CEO for damages arising out of actions of the CEO.

In 1995,  the Company and the CEO settled all  litigation.  In 1997, the Company
received an additional $43,500 in a related settlement from a third party.

Insurance Claim Settlement. On January 29, 1996, the Company and Birmingham Fire
Insurance Company  (Birmingham)  entered into a Settlement Agreement and Release
(Agreement)  for  environmental  claims  primarily  relating  to  the  Company's
Rockaway,  New Jersey property covered under  Birmingham's  insurance policy for
the period May 30, 1980 to May 30,  1983.  On  February  20,  1996,  the Company
received a total of $580,000 for settlement in accordance with the Agreement.

NOTE 14.       INCOME TAXES

At December 31, 1997 and 1996, the Company had deferred tax assets  amounting to
approximately $3,800,000 and $4,600,000,  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 8 and 10) and are fully  offset by a valuation  allowance of the same
amount.

                                         F-24
<PAGE>
NOTE 14.       INCOME TAXES (CONTINUED)

The net change in the valuation allowance for deferred tax assets was a decrease
of approximately $800,000 and $500,000 in 1997 and 1996,  respectively.  The net
change is primarily  due to the recording of certain  environmental  liabilities
(see Note 10) and the reduction of net operating loss carryforwards.

Recoveries  for income taxes  differs  from the amount of income tax  recoveries
determined by applying the applicable U.S.  statutory Federal income tax rate to
the pretax loss as a result of the decrease in the valuation allowance to offset
the decrease in the deferred tax assets.

At December  31,  1997,  the Company had net  operating  loss  carryforwards  of
approximately  $9,000,000  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 $1,300,000,  which will expire
from 1998  through  2002.  In  addition,  the  Company  has net  operating  loss
carryforwards relating to Texas and New Mexico totaling approximately $2,200,000
that will expire in 2002 and 2012, respectively.

NOTE 15.       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 1996 and 1997,  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:

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

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

                                       F-25
<PAGE>
NOTE 15.       LOSS PER SHARE (CONTINUED)

                                        For the year ended December 31, 1996
                                          Income       Shares        Per-Share
                                       (Numerator)   (Denominator)     Amount

Loss from continuing operations       $  (297,182)
                                      ------------
Loss to common stockholders -
basic and diluted loss per share      $  (297,182)     1,090,627     $   (.18)
                                      ============    ===========    =========
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.

In March  1998,  the  Company  closed on a private  placement  of 25 units at an
offering price of $20,000 per unit of 5,000 shares of common stock,  aggregating
to  $500,000,  for a total of 125,000  shares and  warrants to  purchase  62,500
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  $460,000,  and the
Company applied the proceeds for general working capital purposes.


NOTE 16.       STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information are as follows:
                                                      1997            1996

    Interest paid                                 $  5,251           122,725
                                                  ========           =======
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  for  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.

                                       F-26
<PAGE>
NOTE 17.       BUSINESS ACQUISITIONS (CONTINUED)

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.

The  proforma  results of  operations  for the year ended  December  31, 1996 as
though the  companies  had been  combined at the  beginning  of the period is as
follows:
                                                                (Unaudited)

    Net sales                                                 $  2,428,000
                                                              =============
    Loss from continuing operations                           $    806,288
                                                              ============== 
    Net loss                                                  $    902,530
                                                              ==============
    Basic and diluted loss per share from
        continuing operations                                 $        .61
                                                              ============== 
    Basic and diluted loss per share                          $        .68
                                                              ============== 
    Weighted average shares outstanding                       $  1,325,627
                                                              =============
Proforma  results for 1997 are not presented  since the  acquisition  took place
near the beginning of the year.

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.

During the fourth quarter of 1996, in contemplation of the QAI acquisition,  the
Company advanced $690,000 to QAI to fund its operations.  The Company's chairman
also  advanced  $830,000 to QAI,  which amount was repaid to the chairman by the
Company at the closing.
                                        F-27

<PAGE>
NOTE 17.       BUSINESS ACQUISITIONS (CONTINUED)

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

    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,  1997,  the  Company  had  recorded  a loss  for  the  year of
approximately  $2,667,000.  Cash and accounts  receivable were inadequate to pay
accounts  payable  and  accrued  expenses.  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.  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.  The
Company is presently  negotiating  to extend notes payable to a  stockholder  of
$593,000,  which were  originally due in February.  The Company's  common stock,
presently listed on the NASDAQ Small Cap Market,  could  potentially be delisted
pursuant  to an  expedited,  written  hearing  which has been  requested  by the
Company in accordance with NASDAQ rules. The Company also cannot

                                   F-28
<PAGE>

NOTE 18.       GOING CONCERN CONSIDERATIONS (CONTINUED)

undertake a public offering of its stock until the 1998 financial statements are
audited (see Note 11). 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.  Increased sales of the new  high-efficiency,
water cooled air  conditioners  as well as evaporative  coolers are estimated to
produce a break even year for operations in 1998. Management is negotiating with
an asset based lender for a line of credit. In addition, RTI is seeking the sale
of  additional  equity  securities  in a private  placement  offering to provide
needed working capital until a public offering is feasible.

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-29


<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 14, 1998



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



Signature                                        Title                        Date



_________________                      Director / CEO / CFO               April  14, 1998
Rick E. Bacchus



__________________                    Director / VP / Secretary           April 14, 1998

Rockney D. Bacchus



__________________                    Director / VP                       April 14, 1998

Ronald A. Bacchus



__________________                   Principal Accounting Officer         April 14, 1998

James Caylor



__________________                    Director                            April 14, 1998

Lanny Snodgrass

                                                   38
</TABLE>

<PAGE>